The latest Americas economies in-depth infographic breaks down how key indicators across the region have changed in just six months. From cooling inflation to rising debt, and from export slowdowns to diverging national growth stories, the picture is far from uniform.

Behind these numbers are big global trends: falling commodity prices, questions around the path of US interest rates, and doubts about China’s growth momentum. These forces are reshaping outlooks across Latin America and the Caribbean—raising the stakes for economic reform, trade diversification, and smarter fiscal management.

Explore how LAC economies are adapting, where the risks and opportunities lie, and what to watch for in the months ahead.

The post Americas economies in depth: LAC’s economic outlook in mid-2025 appeared first on Atlantic Council.

The post Donovan and Nikoladze cited in the South China Morning Post on the rising role of gold in sanctions evasion appeared first on Atlantic Council.

Within the Trump administration, there appear to be competing and sometimes contradictory perspectives over what dollar dominance means for US policy interests. The perspectives mirror broader debates beyond the White House about the role of the US dollar. Three divergent playbooks—around the dollar as a reserve, payment tool, and store of value—are worth exploring, not least because they are increasingly at odds.

The “America first” dollar

For Trump, the dollar’s international role appears to be of a piece with his broader “America first” philosophy. Trump’s statements suggest that he sees the use of the dollar in global payments as a symbol of US nationalism. During his campaign, for example, Trump threatened to impose 100 percent tariffs on nations from the BRICS group of emerging economies and others seeking to build alternative currency blocs aimed at undermining “the mighty US dollar.” In his words: “You leave the dollar, you are not doing business with the United States.”

Trump’s renewed tariff policy risks undermining dollar dominance by disrupting the economic relationships that have sustained the global dollar system. The many countries that run trade surpluses with the United States value holding and using dollars in international trade. This is because the dollar boasts strong network effects and highly liquid markets. It offers ease of trade and the convenience of invoicing and settling in a single dominant currency. This creates a cycle: Dollars flow out when the United States imports more than it exports, and then those dollars come back as foreign investment in US assets. If the United States reduces imports significantly—via tariffs or trade restrictions, for example—fewer dollars flow abroad. There are already signs that this is happening: Foreign investors have sold $63 billion in US equities between March and April 2025, and the US dollar index is down 8 percent this year. This marks a major retrenchment given that foreign investors entered 2025 with a record 18 percent ownership share of US equities.

Although tariffs are paid by US importers, they also hurt foreign exporters by reducing demand for their goods. Importantly, these tariffs signal that the United States is willing to use its dominant position in global trade and finance as a tool of coercion. In response, affected countries may seek to reduce their dependencies on the United States by developing alternative payment systems, trading in local currencies, and diversifying their reserves. These likely consequences may be an incentive for the administration to pursue a more moderate tariff policy than originally announced, as is already happening, at least temporarily.

Trump also sees domestic innovation in private sector financial technology as central to sustaining the dollar’s global role. On January 23, Trump signed an executive order encouraging the development of dollar-backed stablecoins issued by private firms to enshrine dollar dominance. As much as 80 percent of the flow of dollar-backed stablecoins is happening outside of the United States, and countries such as Argentina, Brazil, and Nigeria have seen significant adoption of stablecoins for remittances or as a hedge against local currency instability. 

US Treasury Secretary Scott Bessent and Federal Reserve Governor Christopher Waller have emphasized that stablecoins could reinforce the dollar’s primacy by creating new demand for US Treasuries, since almost 99 percent of stablecoins are dollar-denominated. While the widespread adoption of dollar-backed stablecoins could reinforce dollar dominance, it also introduces new vulnerabilities. For example, stablecoins could potentially accelerate de-dollarization, especially if nations become concerned about excessive dollarization of their economies and threats to monetary sovereignty. 

According to the Atlantic Council’s central bank digital currency (CBDC) tracker, there has been a global increase in retail CBDC development since the Trump administration took office—potentially signaling that countries are creating domestic digital alternatives specifically designed to limit the proliferation of dollar-backed stablecoins in their economies. Moreover, if inadequately regulated, stablecoins could pose systemic risks—such as triggering bank runs or forcing the liquidation of reserve assets during periods of financial stress, destabilizing Treasury markets. Furthermore, widespread stablecoin adoption without appropriate regulations could lead to shadow payment systems evading traditional oversight, undermining sanctions and monetary policy.

Internal tensions within the Trump administration on digital assets are already emerging. Trump’s inner circle of business leaders appear to favor the broader adoption of digital assets to bolster US competitiveness, while national security officials seem to worry that stablecoins could facilitate money laundering and terrorism financing, as well as undermine Washington’s ability to effectively wield sanctions. The ultimate role of stablecoins in the dollar’s international standing will depend on whether these two groups can reconcile the multiple priorities at stake.

The dollar as an economic burden

But there are other views on the dollar in the White House, as well. Stephen Miran, the chairman of the White House Council of Economic Advisers, has argued that the dollar’s reserve currency status comes at a steep cost to American workers and industry. In November 2024, Miran framed the dollar’s reserve currency status as a structural liability—one that forces the United States to run persistent trade deficits and maintain an overvalued dollar to meet global demand for safe dollar-denominated assets. At the time, Miran proposed unconventional remedies, including purposely devaluing the dollar to create a multipolar currency system to share the reserve status burden. 

Miran seems unconcerned about the dollar’s share of global central bank reserves but acknowledges the risks of a weaker dollar—primarily that investors might abandon dollar assets, increasing US borrowing costs. His proposed solution is to “term out” US debt by convincing countries to exchange short-term holdings for one-hundred-year bonds. While this would lock in foreign investment and reduce rollover risk, the extremely distant maturity could undermine trust rather than build it. Reserve holders prioritize liquidity and flexibility, so dramatically extending maturities might backfire, accelerating diversification away from dollar assets as the currency depreciates.

A fractured coexistence

At the heart of these competing views lies a critical tension that policymakers must address: The dollar serves multiple functions globally, and each function demands distinct strategic approaches.

Miran’s critique focuses on the dollar’s role as a reserve currency. Trump’s BRICS tariff threats, by contrast, focus on the dollar’s payments role. And the Federal Reserve and Treasury’s emphasis on stablecoins is best understood as an attempt to bolster the dollar’s store-of-value function. These are different hats that the dollar wears, and they often require divergent policy responses. Managing one of the hats without due attention to the others risks internal contradictions that could erode the very dominance policymakers seek to preserve.

It is unclear which side within the administration will ultimately have more influence, leading to uncertainty about US policy in the interim.

So what’s the dollar strategy, then?

To maintain long-term dollar dominance, the Trump administration should focus on creating a cohesive policy that reconciles the dollar’s multiple roles and avoids conflicting policy actions. Central to this effort should be a commitment to financial stability (avoiding large-scale tariffs, significant currency manipulation, and cryptocurrency spillover). The world is more likely to view the dollar as trustworthy when it sees the United States as a stable and reliable custodian of foreign assets.

Here are three specific ways the White House can pursue a strong, cohesive dollar policy:

Promote responsible innovation and oversight of dollar-backed stablecoins: The administration—particularly national security agencies, the Treasury, and the Federal Reserve—should actively monitor risks posed by the global proliferation of dollar-backed stablecoins. Policymakers should not ignore the accelerated dollarization of emerging markets and potential restrictive responses. Regulation alone is insufficient; clear enforcement mechanisms are needed to ensure compliance and mitigate systemic risk.

Seek stability through strategic trade measures: The administration should prioritize a stable trade policy and eliminate broad, across-the-board tariffs. Instead, it should apply targeted measures to address specific instances of nonmarket practices and currency manipulation. This would help preserve the dollar’s role by maintaining global investor confidence and ensuring continued dollar circulation in trade without disrupting broader relationships or supply chains.

Reinforce institutional credibility and policy coordination: Reaffirming the Federal Reserve’s independence is important for maintaining global confidence in US monetary policy, capital markets, and the dollar’s long-term strength. At the same time, the administration should enhance the coordination of analytic efforts and ensure consistency across agencies in messaging and policy implementation on dollar-related issues. This could be achieved by more effectively leveraging existing interagency structures, such as the National Security Council and the National Economic Council. Or, if necessary, it could be done by creating a new, dedicated coordination mechanism. The key objective is to deliver greater clarity, predictability, and coherence in the government’s approach.

Above all, policymakers should recognize that the greatest threat to the dollar is not external—it is the erosion of trust in the United States’ political and legal institutions. The dollar is not just backed by the size of the US economy; it is backed by faith in the rule of law, the sanctity of contracts, an independent central bank, and the stability of democratic governance. Structural advantages—network effects, deep capital markets, and the dollar’s centrality to global payments—make its dominance resilient. But these foundations are only as stable as the legal, political, and institutional frameworks behind them. If that foundation weakens, then no number of tariffs or volume of stablecoins can preserve the dollar’s central role in the global system.

For now, there is no viable alternative to the dollar. But the Trump administration’s competing and fractured view on the dollar’s various roles may cause enduring harm to its long-term dominance.

Alisha Chhangani is an assistant director at the Atlantic Council’s GeoEconomics Center.

Israel Rosales contributed to the data visualization in this article.

The post What’s the Trump administration’s dollar strategy? It depends on who you ask. appeared first on Atlantic Council.

The post Donovan and Nikoladze cited by Kitco News on the reasons behind the surge in gold demand appeared first on Atlantic Council.

The post Mühleisen quoted by Reuters on the IMF and World Bank’s potential role in Syria’s reconstruction appeared first on Atlantic Council.

In her traditional Global Policy Agenda speech, the IMF managing director, Kristalina Georgieva, sought to temper market anxieties and reassure member countries. She struck a tone of cautious optimism and underscored the Fund’s institutional preparedness while candidly acknowledging a range of serious global risks. She outlined three interlocking priorities to frame the week’s deliberations: (1) resolving trade tensions and restoring confidence, (2) safeguarding economic and financial stability, and (3) reviving medium-term growth through structural reforms.

Acknowledging the gravity of the moment, Georgieva stated, “We’re not in Kansas anymore,” a metaphor underscoring the unfamiliar and turbulent terrain the global economy now faces. She advocated for a comprehensive and coordinated settlement among major economies aimed at rolling back trade barriers, reducing policy uncertainty, and restoring the openness of global trade flows. She warned that prolonged ambiguity was already suppressing investment and eroding consumer confidence.

In this context, the IMF reiterated its longstanding position that both tariff and non-tariff barriers must be lowered to preserve multilateralism. However, the challenge extends beyond immediate trade disputes. Structural imbalances—including China’s elevated savings and weak domestic consumption, the United States’ sustained fiscal deficits, and the European Union’s incomplete economic integration—are increasingly viewed as drivers of systemic strain. To correct these asymmetries, the IMF recommended: (1) stimulating domestic demand in China, (2) advancing infrastructure investment and market integration in Europe, and (3) embarking on credible fiscal consolidation in the United States. The IMF portrayed these national adjustments as preconditions for global macroeconomic rebalancing and long-term resilience.

The second thematic pillar—economic and financial stability—highlighted the narrowing margin for error after years of policy stimulus in response to the pandemic, inflationary shocks, and geopolitical disruptions. Georgieva’s appeal to “get your house in order” captured the moment’s urgency. She urged countries to reinforce their fiscal foundations by implementing credible and transparent medium-term frameworks.

While she broadly encouraged gradual deficit reduction, Georgieva gave particular attention to low-income and emerging economies, which are confronting acute debt vulnerabilities amid tightening global financial conditions. For these nations, the policy agenda emphasized enhanced domestic revenue mobilization, improved public financial management, and proactive engagement with debt restructuring mechanisms. On the monetary front, Georgieva advised central banks to remain guided by incoming data and preserve their operational independence, while continuing to focus on price stability. The meetings also addressed mounting concerns over the stability of the financial system, including the risks posed by non-bank financial intermediaries, and called for more robust regulatory oversight and international coordination.

Finally, the IMF’s managing director placed renewed emphasis on the structural transformation needed to revive medium-term growth. As Georgieva declared, “Now is the time for long needed but often delayed reforms.” With global potential growth trending downward, she plainly acknowledged the limitations of monetary and fiscal policy.

Instead, discussions centered on national reform agendas tailored to each country’s specific institutional context. These included measures to improve the business climate, enhance governance and the rule of law, modernize labor and product markets, and strengthen innovation ecosystems and digital capacity. For emerging and developing economies, the imperative to expand access to finance, invest in human capital, and build sustainable infrastructure was seen as crucial to catalyzing private sector participation. Climate resilience and inclusive growth were integrated into the broader reform discourse, reflecting the growing consensus that sustainability must be embedded in long-term economic strategy. The IMF committed to supporting member countries in these efforts through targeted instruments—such as the Resilience and Sustainability Trust—alongside bespoke policy advice and capacity development.

A pivotal intervention during the meetings came from US Secretary of the Treasury Scott Bessent, who addressed the Institute of International Finance with a call for the IMF to return to its original mandate. He criticized the Fund’s perceived “mission creep” into areas such as climate, gender, and inequality. He acknowledged these issues as important, but potentially distracting from the IMF’s core objectives of macroeconomic stability, balance of payments support, and monetary cooperation. Bessent reaffirmed US support for the Fund and the World Bank, while clarifying that continued engagement would hinge on institutional discipline, rigorous program conditionality, and a sharper focus on correcting global imbalances. His remarks signaled not just a recalibration of US expectations, but a broader ideological debate over the role of multilateral financial institutions in a fragmenting global order.

Georgieva’s response the following day was diplomatically calibrated. In an April 24 press briefing, she welcomed continued US engagement and described Bessent’s comments as constructive. “The United States is our largest shareholder… of course, we greatly value the voice of the United States,” she remarked, interpreting the speech as a reaffirmation of US commitment at a time when political rhetoric had raised fears of disengagement. She acknowledged the legitimacy of US concerns and noted that ongoing institutional reviews—including the Comprehensive Surveillance Review and the Review of Program Design and Conditionality—would serve as venues for deeper discussions. These mechanisms, she suggested, provide space to reexamine priorities, refine programs, and ensure alignment between the Fund and its major stakeholders.

But what do US concerns about the IMF’s direction truly entail, and how might they be addressed in the upcoming policy reviews? It is crucial to recognize that, despite holding over 16 percent of the Fund’s voting power, the United States cannot unilaterally block the IMF executive board’s approval of the regular Comprehensive Surveillance Review. This implies that the most consequential negotiations will, as is customary, occur informally and behind closed doors. We can anticipate that the US executive director’s office will try to shape a draft document that aligns with Washington’s preferences.

However, the United States is not the only influential voice at the table. Other member states—many of whom have divergent priorities, particularly on issues such as climate integration, social inclusion, and the future scope of macroeconomic surveillance—will also seek to assert their positions. The previous surveillance review in May 2021 introduced climate macro-criticality into Article IV consultations for the twenty largest greenhouse gas emitters. Whether the United States can successfully build a broad coalition to revise the surveillance framework in line with its renewed emphasis on “core” macroeconomic fundamentals remains to be seen.

Yet despite the Spring Meetings attendees’ efforts to project cohesion and forward momentum, the underlying global outlook remains clouded by persistent uncertainty. Geopolitical tensions, rising debt burdens, and diverging monetary policy trajectories continue to weigh on policy coordination platformed by the IMF.

As attention shifts toward the 2025 annual meetings this October, critical questions will come into sharper focus. Can the IMF meaningfully recalibrate its surveillance priorities? Will members find the political will to realign quotas and governance structures? How will the Fund balance its evolving role with the demands for institutional discipline? These meetings will not merely be another milestone in the global economic calendar—they may well constitute a stress test for the resilience of the postwar international system and its ability to adapt in an increasingly complex, multipolar world.

Bart Piasecki is an assistant director at the Atlantic Council’s GeoEconomics Center.

The views and opinions expressed herein are those of the author and do not reflect or represent those of the US Government or any organization with which the author is or has been affiliated.

Related content

Bretton Woods 2.0 Oct 21, 2024

Get an inside look at the IMF-World Bank meetings as finance leaders navigate a geopolitically fragmented world

By Atlantic Council experts

To gauge whether delegates can revive the world’s spirit of cooperation at the IMF-World Bank Annual Meetings, we sent our experts to the center of the action in Foggy Bottom.

China Economy & Business

Econographics Sep 27, 2024

The IMF-World Bank Annual Meetings in 2024: Five important issues to be addressed

By Hung Tran

Despite intense geopolitical contention that has stymied international cooperation, the October gathering could nevertheless lead to agreements to stabilize a volatile global economy.

Economy & Business International Financial Institutions

Econographics Jul 18, 2024

The Bretton Woods institutions need revitalizing. Luckily, they are no strangers to reform.

By Amin Mohseni-Cheraghlou

The changing nature of the global economy is forcing these institutions to take a renewed look at their governance structure and mandates. This is not the first time they have had to do so.

Economy & Business Fiscal and Structural Reform

At the intersection of economics, finance, and foreign policy, the GeoEconomics Center is a translation hub with the goal of helping shape a better global economic future.

Learn more

The post Multilateralism under pressure: Takeaways from the 2025 IMF Spring Meetings appeared first on Atlantic Council.

Such data gives a different perspective on the United States’ trade relationships. Countries in Latin America and the Caribbean (LAC), especially Mexico, import US goods at levels more typical of high-income countries, outperforming countries with similar income and development levels located in other regions.

This infographic highlights LAC’s unique role as a high-value market for US products. With strong trade ties and deep supply-chain integration, the region could help the United States advance its economic goals.

The post Americas economies in-depth: Latin America and the Caribbean outperforms in imports of US goods appeared first on Atlantic Council.

The post Lipsky interviewed by CNBC on the limited scope of the US-UK trade deal appeared first on Atlantic Council.

The post Dollar Dominance Monitor cited in Reuters on the global reliance of the dollar appeared first on Atlantic Council.

The post Graham cited by the National Security Commission on Emerging Biotechnology on US reliance on Chinese pharmaceuticals appeared first on Atlantic Council.

The post Lipsky and Bhusari cited in Business Insider on US electronic imports from China appeared first on Atlantic Council.

The post Lipsky quoted in Axios on the lasting impact of Trump’s tariffs appeared first on Atlantic Council.

The welcome in Riyadh will be more than ceremonial: Saudi Arabia is the linchpin of Trump’s Gulf tour. On May 14, Trump will join heads of all six GCC states at a summit in the Saudi capital. From Riyadh, Trump will head to Doha for talks with Qatari Emir Tamim bin Hamad Al Thani, then to Abu Dhabi to meet UAE President​ Mohammed bin Zayed Al Nahyan.

But Trump’s Gulf visit is more than a diplomatic tour; it is a pivotal opportunity to reimagine US–Gulf relations for a new era. The region is no longer content to be seen as the world’s energy hub alone; its ambitions now span digital innovation, green growth, and global influence. To remain a trusted and valuable partner, the United States must evolve its engagement strategy—offering not only promises but a visionary blueprint for shared prosperity and long-term stability.

Energy diplomacy: Oil on the table

Oil production will feature prominently in Trump’s talks, as energy prices tie directly into both global economics and domestic politics. Trump has drawn a link between high inflation in the United States and expensive oil, vowing to ask Saudi Arabia and the Organization of Petroleum Exporting Countries (OPEC) to “bring down the cost of oil.”​ Oil producers seemed to be trying to pre-empt such a request with this week’s announcement of another production increase, which caused oil prices to drop. Will this be enough for Trump? He will need to balance the US desire for affordable fuel with respect for Saudi economic goals, including ambitious domestic projects funded by higher oil prices. Any public statements on oil will be closely watched for signs of compromise. Energy talks may even address renewables and climate adaptation, a newly important topic for Gulf states.

Confronting regional conflicts

The Middle East’s simmering conflicts form a tense backdrop to the visit. Containing Iran’s nuclear ambitions will be a top priority. Trump’s visit comes as Washington tries to develop a new nuclear deal with Tehran, a move quietly backed by Saudi Arabia and the UAE​. Gulf leaders will seek reassurance that this outreach won’t compromise their security. Another pressing issue is Gaza. Trump pointedly is not visiting Israel—a sign that without progress toward a Gaza cease-fire or hostage deal, such a stop would yield little. Instead, Qatar and Egypt continue to work on brokering a cease-fire and easing the humanitarian crisis.

Yemen’s war, where a fragile cease-fire now offers hope, will also come up—Trump can reinforce Gulf-led peace efforts by lending US support​. From Yemen’s tentative peace to Syria’s uncertain future, Gulf partners are bearing more responsibility for regional crises, and US backing can help them succeed​. Each of these challenges underscores the importance of US-Gulf cooperation in resolving conflicts, as Washington and its Gulf allies strive to coordinate strategies and realign on the responsibilities of peace-making.

Investment and economic opportunities

Economic statecraft is at the heart of Trump’s Gulf agenda. The region’s deep pockets and sovereign wealth are a magnet for a US president eager to spur investment and job growth back home​. Trump will seek major new investments from Saudi Arabia, Qatar, and the UAE into US infrastructure, energy, and technology ventures​. In this transactional diplomacy, big numbers matter—and reports suggest that Trump is hoping to secure additional investment deals. Visible Gulf capital flows would allow Trump to claim wins for the US economy.

Beyond oil and real estate, today’s focus includes emerging industries. Cooperation in artificial intelligence and advanced technology is on the agenda​, aligning with Gulf states’ ambitions to become tech hubs. Expect announcements of joint tech funds or research centers. Defense deals are another pillar of the economic relationship. On the eve of the trip, the United States approved a $3.5 billion sale of advanced air-to-air missiles to Saudi Arabia, a signal that security cooperation (and the hefty contracts that come with it) will feature alongside business deals. By the end of the tour, Trump will aim to unveil a slate of agreements projecting a narrative that US-Gulf ties are translating into tangible economic benefits.

Despite headline-grabbing Gulf pledges, the numbers tell a cautionary tale. The UAE’s vaunted ten-year, $1.4 trillion investment commitment is enormous. However, this commitment lacks any clear roadmap, and such long-term promises face serious headwinds amid global economic volatility. Similarly, Saudi Arabia’s promised $600 billion (over four years) investment push represents an implausibly high share of the country’s economy. Riyadh’s finances are already stretched by Vision 2030 mega-projects like the city of NEOM, forcing the government to recalibrate and prioritize domestic spending. With the kingdom contending with turbulent growth forecasts and persistent political strains (not least the fallout from the war in Gaza), a sustained influx of Saudi capital into the United States is increasingly in doubt.

Recalibrating bilateral relationships

Each stop on the trip reflects a recalibration of US ties with a pivotal Gulf partner. In Saudi Arabia, Trump will renew official ties with Crown Prince Mohammed bin Salman after having kept his relationship with Riyadh strong during his time out of office. A similarly reassuring tone is expected in Abu Dhabi, where the UAE’s leaders seek confirmation of enduring US support even as they hedge with other partners. The stop in Doha highlights Qatar’s importance as a US ally, host to a major airbase and a mediator in regional crises. Broader strategic issues will weave through these bilateral talks. With China and Russia also courting the region, Trump’s visit is a chance to reassert US influence amid shifting alliances​.

As Trump prepares for his high-stakes visit to the Gulf, it is essential that his administration makes the most of this opportunity. Beyond familiar conversations about oil and security, this visit can—and should—mark the beginning of a broader, smarter partnership. Here are four ways Trump and his team can seize the moment.

1. Stabilize energy markets, embrace climate adaptation: Trump will ask Gulf producers to help moderate oil output to keep global prices in check. Yet to make this more than a one-note exchange, Trump should propose joint US–Gulf initiatives focused on clean energy transitions and climate resilience. By supporting Gulf investments in hydrogen, carbon capture, and renewable energy, the United States can demonstrate that its energy ties are evolving with the times—making both economies more resilient and forward-looking.
2. Prioritize conflict mediation: Washington’s long-standing alliances in the Gulf are grounded in shared security interests. Trump should leverage the considerable trust he enjoys with Gulf leaders to press for meaningful progress in Yemen’s fragile peace process and the war in Gaza. A joint US–Gulf conflict resolution framework could institutionalize cooperation, ensuring both swift responses to flare-ups and sustained support for reconstruction and peacebuilding, helping to stabilize a region too often trapped in cycles of crisis.
3. Bolster economic ties through innovation: Trump’s transactional approach to diplomacy is well known, but this trip offers a chance to push economic ties into new, forward-looking areas. Encouraging Gulf sovereign wealth funds to channel investments into US infrastructure and tech startups would deliver immediate economic benefits. Yet deeper gains lie in establishing joint research ventures in artificial intelligence, cybersecurity, and next-generation industries. This form of digital diplomacy could position both sides as global innovation leaders, fostering a tech-driven alliance for the twenty-first century.
4. Strengthen cultural bridges: To humanize what is often seen as a transactional relationship, the United States should double down on cultural diplomacy. Arts collaborations, sports exchanges, and interfaith dialogues can soften perceptions and deepen trust between societies. By championing such initiatives, Trump can underscore that US–Gulf ties are not confined to boardrooms and defense pacts but extend into the everyday fabric of life. Nurturing people-to-people connections is as strategic as any formal agreement.

If Trump can look beyond the predictable and embrace a more diversified, future-oriented approach—one that ties oil and security to innovation, youth, and culture—he can transform this trip from a standard diplomatic handshake into a legacy-defining pivot. The sands of the Gulf are shifting fast. To stay grounded, the United States must not just renew its ties—but reinvent them for the decades ahead.

Racha Helwa is the director of the empowerME Initiative at the Atlantic Council’s Rafik Hariri Center for the Middle East.

The post Trump’s Gulf gamble: Oil, conflicts, and opportunities in a high-stakes visit appeared first on Atlantic Council.

The post Dollar Dominance Monitor cited in Politico on the role of the dollar in foreign exchange transactions appeared first on Atlantic Council.

The post Lipsky’s interview with Bank of England’s Megan Greene featured in Reuters on the implications of US tariffs on UK inflation appeared first on Atlantic Council.

The post Lipsky’s interview with Bank of England’s Megan Greene featured in Bloomberg on historical rebounds of the US dollar appeared first on Atlantic Council.

The post Mühleisen quoted in Bloomberg on potential risks highlighted by the IMF in its Global Financial Stability Report appeared first on Atlantic Council.

The post Event with Bank of France Governor Francois Villeroy de Galhau featured in Bloomberg on the role of the dollar in the international monetary system appeared first on Atlantic Council.

The post Atlantic Council’s IMF-World Bank week event with French Central Bank Governor Francois Villeroy de Galhau featured in Reuters appeared first on Atlantic Council.

Laissez-faire economics is out; less-than-it-was economics is in. On Tuesday, the International Monetary Fund (IMF) released its latest World Economic Outlook (WEO), which cut its projection for global growth in 2025 to 2.8 percent, down from 3.3 percent in its January forecast, with US growth now pegged at 1.8 percent, down from 2.7 percent. Driving a significant part of these downward revisions are US President Donald Trump’s tariff announcements, along with the associated policy uncertainty and push toward protectionism globally. “We are entering a new era,” the IMF’s chief economist said, as the “global economic system that has operated for the last eighty years is being reset.” Below, Atlantic Council experts at the IMF-World Bank meetings this week in Washington delve into the details and explore what it all means.

• Josh Lipsky (@joshualipsky): Senior director of the Atlantic Council’s GeoEconomics Center and former adviser to the IMF
• Jeremy Mark (@jedmark888): Nonresident senior fellow at the GeoEconomics Center and former IMF communications specialist
• Elizabeth Shortino: Nonresident senior fellow at the GeoEconomics Center and former US executive director at the IMF
• Martin Mühleisen (@muhleisen): Nonresident senior fellow at the GeoEconomics Center and former IMF official

Prediction problems

• Predicting the economic future is difficult any time; even more so now. Josh points out that just last week, US Federal Reserve Chair Jerome Powell said “there isn’t a modern experience of how to think about this,” underscoring the difficulty in modeling the global impacts of the Trump tariffs. The new WEO is important, Josh adds, because in effect “the IMF said, ‘We’ll give it a try.’”
• That said, the IMF does hedge somewhat by offering three scenarios. Jeremy notes that the IMF officials focused on WEO’s “reference forecast,” which sees a 0.5 percentage point reduction in global output for all of 2025 when calculating the impact of all of Trump’s tariffs this year through “Liberation Day,” without the subsequent pauses. And it could turn out to be even worse than that, Jeremy adds, since some economists see IMF projections as “too inclined to accentuate the positive”
• “The recent rapid trade and market developments make it next to impossible to produce a reliable baseline forecast for global growth,” says Elizabeth. “The IMF also had to walk a fine line in assessing the impacts of US actions without too overtly criticizing its largest shareholder. Not an easy task on both counts.”

Sign up to receive rapid insight in your inbox from Atlantic Council experts on global events as they unfold.

Certain about uncertainty

• The word “uncertainty” appears more than one hundred times across the WEO and its companion document, the Global Financial Stability Report, Elizabeth notes. “This message is on point, as uncertainty abounds and poses its own strains on the global economy.” 
• What does this uncertainty look like? In the United States, further stock market declines, higher interest rates, and exchange rate fluctuations have the potential to create “significant shocks that could destabilize financial markets,” Martin says. At the same time, the WEO states that a resolution of the tariff conflicts or an end to the war in Ukraine could provide a major boost to the global outlook. 
• And yet, Martin says, “there should be no illusion about the risks facing the world economy, reminiscent of the last financial crisis, and continued uncertainty on tariffs and other policies risks moving markets closer to the abyss.”
• Those risks come out even more when you dig below the headline numbers. Jeremy notes that the projections of 4 percent growth for China this year and next year “probably won’t go over well in Beijing,” since they are below official figures. Elizabeth points to “a more dire scenario” for global growth nestled in the WEO if the United States extends the Trump first term tax cuts, China’s domestic demand continues to lag, and Europe’s productivity does not grow.

A recession by any other name

• Could the world be headed for a recession? Josh points out that the IMF is not projecting a global recession this year, even though the risk has increased. Moreover, Josh adds, what would qualify as a global recession is different from a recession in a single country, which is generally two consecutive quarters of negative growth. 
• “When I was at the IMF, there was a debate about whether GDP growth under 2.5 percent would constitute a recession,” says Josh. “It seems like today the IMF has made a determination about what this looks like in the current situation—2 percent GDP growth—although they call it a global economic downturn.”
• Josh will be paying close attention to how IMF Managing Director Kristalina Georgieva answers the recession question in her Thursday press conference: “Just because the global economy isn’t in a recession by the IMF’s standards at the moment, it doesn’t mean in a few months we won’t cross the mysterious threshold.”

New Atlanticist

Apr 20, 2025

Inside the IMF-World Bank Spring Meetings as leaders navigate the global trade war

By Atlantic Council experts

Amid an economic climate of great uncertainty, we dispatched our experts to the center of the action in Foggy Bottom to share their biggest takeaways from a pivotal week for the global economy.

Inclusive Growth International Financial Institutions

The post Is the global economy headed for a reset, recession, or both? appeared first on Atlantic Council.

Those projections were released at the IMF-World Bank Spring Meetings, where central bank governors, finance ministers, and other economic leaders met. There, many sounded the alarm about the global economy’s trajectory and discussed their plans to cushion their countries from the blow of low growth and high inflation, which are expected to result from US President Donald Trump’s sweeping tariffs.

Amid an economic climate of great uncertainty, we dispatched our experts to the center of the action in Foggy Bottom to share their biggest takeaways from a pivotal week for the global economy. Read what they want you to know below.

This week’s expert contributors

APRIL 26 | 12:01 PM ET

“Those who seek to deconstruct the system… have an obligation to share the vision of what comes next”

Wrapping up the week, GeoEconomics Center Senior Director Josh Lipsky, who is also the chair of international economics at the Atlantic Council, reflects on the founding of the Bretton Woods institutions and calls for visionary leadership to shape what comes next.

Read the remarks

The US dollar has been the global reserve currency for approximately a century, and we can sit here as we did this week and talk about all the macroeconomic factors of why that is—liquidity and capital markets and all the ins and outs that make something a reserve currency or not.

But the fundamental reason something becomes a reserve currency, the world’s leading experts on currency will tell you, including at the Atlantic Council, is the rule of law.

But another way to say that is trust: Trust that, fundamentally, you will be treated fairly, there will be a process if there’s a dispute, that you understand the system, how it works, and how it doesn’t. That trust was hard fought for and hard won by the United States.

We often romanticize the three weeks in New Hampshire in 1944, as when the world came together and set out a new international economic order and created the dollar as the global reserve currency. But the truth is much more complicated. There was wrangling and backstabbing and negotiation and suspicion, countries not wanting to deal with each other, bilateral negotiations just like we see this week.

And what emerged from that meeting was not a consensus. It was a precarious and tenuous agreement to see if the United States, as the leader of an international economic system, could earn the trust of the world. And they did it.

The United States did something that no superpower in the history of the world had ever done before. They shared their power. They built a rules-based international system, and that system benefited the world, but it also benefited the United States. It generated enormous prosperity in this country.

We overlook that history at our own peril. Are there deep flaws in that system? Of course, there are. Have they built up, especially in the past twenty, thirty years to the detriment of American workers and workers around the world in advanced economies? There is no doubt. Is reform needed? Of course, there is absolute unity across the IMF and World Bank about the need for reform.

But those who seek to deconstruct the system that was built over nearly a century have an obligation to share the vision of what comes next.

This world that we have built, this economic order, is imperfect. But it represents the consensus of the citizens of the countries that these ministers and governors represent. And the brilliance of this system is that every country has a voice.

And working together, they build a stronger global economy. We may have forgotten those lessons as a century has moved on, and it may be painful for all of us as we seek to relearn them. But we have to come out of the other end of this, not just in a bilateral world, the way we operated before the Bretton Woods system, but a way that shows we have learned and not forgotten the lessons of history. That is what we will be committed to at the Atlantic Council, and that is what we will continue to work on in the days, weeks, and months ahead.

APRIL 26 | 11:24 AM ET

Thanksgiving in April

Last year at the Annual Meetings, my colleague Martin Mühleisen likened these gatherings to Thanksgiving, as both ‘sides’ of the family come together in good spirits—though there may be a kick under the table. On this, I agreed, noting there is meaningful cooperation, collaboration, and respect between the IMF and World Bank.

Despite the overarching sense of gloom at these Spring Meetings, as the trade war heightens economic uncertainty, there were encouraging signals that much-needed coordination and partnership between these two institutions and beyond can and is happening.

For example, take domestic revenue mobilization and debt, two connected challenges listed prominently on the agenda. That’s the case for good reason: Emerging market and developing economies collectively face a financing shortfall in the trillions. As I discussed on Tuesday with the French Treasury’s William Roos, who is also co-chair of the Paris Club, these countries lack fiscal space to invest in growth or climate resilience, mainly due to declining development assistance and hamstringing debt (at least half of these countries are in or at high risk of debt distress).

The implications for macro stability, economic development, and poverty alleviation give both the Bank and Fund a shared interest in prioritizing action. They have similar tools at their disposal—financing, concessional lending, trust funds, policy advice, and capacity building. But too often these tools are utilized in isolated, fragmented, and (at times) even counterproductive ways.

This is why joint efforts such as the IMF-World Bank Debt Sustainability Framework for Low-Income Countries and the Domestic Resource Mobilization Initiative are so critical. So is the new, much-anticipated “Playbook” for debt restructuring released on Wednesday by the Global Sovereign Debt Roundtable, which the Fund and Bank co-chair along with the Group of Twenty presidency. Ceyla Pazarbasioglu—the director of the Strategy, Policy, and Review department at the Fund—got giddy discussing these collaborations with Pablo Saavedra, vice president of Prosperity vertical at the Bank, and me.

As much as ongoing and strengthened coordination between these two institutions is important, I am even more encouraged by what I heard from them and others, on and off the 19th Street campus, and in front of cameras and behind the scenes. The people I spoke with acknowledged the need to revisit the broader international financial system for better cooperation (including with regional international financial institutions), improved ownership of national policies by and alignment with governments, and ultimately more effectiveness in an era when everyone has to do more with less. Keep an eye out for momentum that can and should enable progress, not only in the lead up to the Annual Meetings in October but also ahead of the fourth Financing for Development Conference in Seville this summer. If you’re curious about what that will entail, watch my conversation with United Nations Assistant Secretary General for Economic Development Navid Hanif and Ambassador of Zambia to the United Nations Chola Milambo.

APRIL 25 | 6:27 PM ET

Dispatch from IMF-World Bank Week: Success, in one underappreciated way

In the meetings and panels I attended this week, the air was thick with existential dread over the Bretton Woods institutions’ very future. Delegates came prepared for the worst, bracing for a difficult set of discussions with the new US administration.

Considering the expectations for these meetings were so low, I would say they wound up a qualified success. The mood had already improved after the United States supported an IMF deal with Argentina, struck the week before, and after US Treasury Secretary Scott Bessent delivered a speech providing reassurance that the United States values the Bretton Woods institutions—as long as major reforms are undertaken.

Even though most people focused on the gloomy outlook for the world economy over the course of the week, some gave in to guarded optimism as markets stabilized on the hope for a US stand-down on several trade fronts.

The shift in mood wasn’t the only sign of success; there were concrete deliverables. One came from the Global Sovereign Debt Roundtable, which issued a roadmap for debt restructuring negotiations, signaling important consensus among major creditor countries. Moreover, the IMF and World Bank announced that they will engage with the new Syrian government to help restore their country’s war-damaged economy.

In addition, the statement by the International Monetary and Financial Committee chair (issued in lieu of a communiqué) struck a tone that was clearly aimed at addressing the United States’ stringent demands—although it did not give any indication of how the IMF would do so, and the real work still lies ahead.

Despite these positive signals, the global financial system faces considerable uncertainty. The Argentina program is a risky bet, the Trump administration could switch its view on the Bretton Woods institutions, and there is now a bigger question mark attached to the dollar’s future as the world’s dominant currency.

This week proved the value of IMF-World Bank meetings in troubled times. In speaking at Atlantic Council headquarters on Thursday, Spanish Finance Minister Carlos Cuerpo told us that the most important deliverable this week, with difficult decisions looming over the next few months, was simply for people to keep “talking to each other.” I couldn’t agree with him more.

APRIL 25 | 3:48 PM ET

The actions needed to support those who are financially underserved in Africa

At World Bank headquarters, the Atlantic Council’s Ruth Goodwin-Groen sat down with Admassu Tadesse, president and managing director of the Trade and Development Bank Group, to talk about the absence of venture capital in Africa and the need to promote inclusive finance.

APRIL 25 | 3:02 PM ET

Egypt’s Rania Al-Mashat on navigating today’s global shocks

APRIL 25 | 1:57 PM ET

This week shifted our understanding of everything from dollar dominance to trade wars

This week’s IMF-World Bank Spring Meetings have only highlighted that no one is coming to save the global economy. There is no rescue committee, no stimulus plan, and no quick Fed cuts around the corner.

Most of the ministers knew this was the state of affairs coming in. But it’s one thing to talk about a trade war. It’s another to see the IMF cut the growth forecast for nearly every country in the world because of a single policy decision.

In the beginning of the week, I sensed gloominess and anxiety in the hallways and in our private conversations with finance chiefs. But by the end, I noticed something else, the same thing I remember back in 2008 during the financial crisis: a steely sense of resolve. These leaders understood that at some level, the tariffs are here to stay, trade deals would take months or longer, and the global economy is being restructured.  It would be, as one minister said privately, just something we have to weather.

That’s true, but how bad will the storm be? No one knows. That doesn’t mean this week didn’t offer clarity, however. Our team walked away from these meetings with a transformed understanding of three issues:

1. There’s a difference between wanting dollars and needing dollars. The dollar’s status as a reserve currency is safe for the time being. That’s what Bloomberg’s Saleha Mohsin told me in our conversation, and she brought the data to back it up. But while the world still needs dollars for a functioning global economy, there were many people this week who wouldn’t mind finding some plan Bs. Do they exist? Not exactly. The European finance chiefs we spoke to were skeptical that a move to the euro would stick—and some, such as the Banque de France governor, weren’t sure it was a good thing given it was a result of instability in the United States, not a vote of confidence in the euro area.
2. The Trump administration is as focused on the IMF as it is on the World Bank. There was chatter going into the week that the administration was more focused on putting pressure on the World Bank than the IMF. But US Treasury Secretary Scott Bessent, in a speech on Wednesday, spent as much time—if not more—talking about the Fund going beyond its mandate than he did on the Bank lending to China. That surprised many, and it means there are fights ahead as the IMF—and the Bank—tries to respond to its largest shareholder in the months ahead without alienating the other 190. Considering the Trump administration has an end-of-July review deadline to decide its policy on US involvement in international organizations, the eighty-first anniversary of the creation of Bretton Woods institutions (July 22) could be one of the most significant since their founding.
3. Emerging markets and developing economies are already getting hit hard. Our conversations made it clear that a range of countries across regions is already feeling the impact of the trade war and economic slowdown in the form of job loss and increased poverty rates. These countries are going to need assistance from the IMF and World Bank in the near future. Even if the US president reversed his policy and slashed tariffs back down as soon as tonight, that wouldn’t fix the problem. It’s the volatility that feeds the uncertainty that pulls back investments. As the old saying goes, trust arrives on foot but it leaves on horseback.

APRIL 25 | 11:03 AM ET

The Bank of England’s Megan Greene: On tariffs, the “risk is now on the disinflationary side”

APRIL 25 | 10:15 AM ET

Slow progress on debt restructuring

Amid the week’s focus on trade tensions and economic uncertainty, the lingering issue of developing country debt has received little attention. However, reports released on Wednesday by the IMF and World Bank’s Global Sovereign Debt Roundtable (GSDR) suggest that the frustratingly slow process of restructuring unsustainable debts—a problem that took center stage amid the economic dislocations of the COVID-19 pandemic—has made important, albeit incremental, gains over the past few years.

A handful of countries have passed through the restructuring process, most of them low-income economies whose debts were supposed to be addressed by the Group of Twenty governments’ Common Framework for debt “treatment.” But some other nations—notably Sri Lanka—did not fit within that framework. What has emerged has been a case-by-case process in which government and private-sector lenders have worked through complex roadblocks, many of which were posed by the world’s largest sovereign lender, China.

The GSDR co-chairs’ Progress Report lays out many of the nuts-and-bolts issues that have been addressed, ranging from “comparability of treatment” across different creditor groups to the restructuring of “non-bonded commercial debt,” which generally means bank loans. It also lists several areas that need to be addressed going forward, including how to enhance coordination of private-sector creditors.

While the reports are careful not to point fingers at any specific lenders, the reality is that many of the issues before the roundtable have been posed by China, which is loath to take write-downs on its massive portfolio of loans. Beijing’s position on these issues has at times been opaque, but a recent paper put out by the Harvard Kennedy School usefully illuminates much of the back and forth that has taken place during the recent restructurings—as well as the work that remains to be done.

APRIL 25 | 9:17 AM ET

Catch up with everything happening at the Atlantic Council on day five

Dispatch from IMF World Bank Week: Why surveillance matters

Why Europe being a “safe haven” for the world is “good news for everyone,” according to Spanish Finance Minister Carlos Cuerpo

Greece’s Kyriakos Pierrakakis: “Unless you create positive tailwinds, you cannot counter the negative headwinds”

Experts and leaders focusing on Central and Southeastern Europe discuss the challenges facing the region

Catch up with everything happening at the Atlantic Council on day four

A common tone among key leaders is a sign for optimism

In defense of “boring”: A European leader’s message to Trump

Read day three analysis

APRIL 24 | 7:57 PM ET

Dispatch from IMF World Bank Week: Why surveillance matters

This morning, I watched as IMF Managing Director Kristalina Georgieva unveiled her Global Policy Agenda (GPA), a biannual document that outlines the managing director’s vision for the IMF’s work over the coming year.

 The most notable part of this year’s GPA is its focus on surveillance—in other words, the IMF’s work to assess the economic health of its members. As part of that focus, the GPA discusses the Comprehensive Surveillance Review, the IMF’s way of setting priorities and updating its processes for conducting bilateral and multilateral surveillance. There are some things to applaud in the outline for the upcoming review, including the emphasis on the IMF’s core areas of expertise: fiscal, monetary, and financial issues—and, most importantly, the persistent theme of external imbalances. 

However, some will not applaud the fact that there were few passing references to climate and no mentions of gender, despite the IMF having increased its budget for these and other emerging topics within the past few years. The GPA proposes instead “adapting surveillance” by setting principles around the topics to be covered. This approach aligns well with US Treasury Secretary Scott Bessent’s remarks from yesterday that the IMF has suffered from “mission creep.” But European partners will no doubt have concerns that the Fund is abandoning its climate strategy, approved just four years ago.  

My own view is that the GPA’s focus on surveillance is a welcome departure from the past. Surveillance may not get as many headlines as the IMF’s lending programs, but it provides an enormously valuable public good, particularly in those countries that do not receive regular market coverage. The IMF’s policy advice can also steer bilateral and multilateral donors and their efforts to prioritize assistance.

Watch this space closely to see whether the Comprehensive Surveillance Review delivers concrete reforms and real modernization efforts to help serve both advanced and developing economies.

APRIL 24 | 4:38 PM ET

Why Europe being a “safe haven” for the world is “good news for everyone,” according to Spanish Finance Minister Carlos Cuerpo

APRIL 24 | 2:56 PM ET

Greece’s Kyriakos Pierrakakis: “Unless you create positive tailwinds, you cannot counter the negative headwinds”

APRIL 24 | 1:42 PM ET

Experts and leaders focusing on Central and Southeastern Europe discuss the challenges facing the region

APRIL 24 | 9:22 AM ET

Catch up with everything happening at the Atlantic Council on day four

APRIL 24 | 8:43 AM ET

A common tone among key leaders is a sign for optimism

All things considered, the IMF-World Bank Spring Meetings are generating surprisingly optimistic and positive messages. 

Weeks of policy volatility, market volatility, and much hand-wringing over the Trump administration’s stated effort to reconsider the multilateral arrangements laid the groundwork for a tempestuous set of meetings. Yet we are just past halftime with no existential crisis (yet) at the IMF or the World Bank.

At this point, the European Commission, World Trade Organization (WTO), and US Treasury have all spoken publicly. They may not have been singing from the same sheet music, but they were all certainly singing in harmony.

EU Commissioner Valdis Dombrovskis, speaking at the Atlantic Council, said that the EU “is not giving up on our closest, deepest, and most important partnership, with the United States… And we will need each other even more in tomorrow’s increasingly conflictual and competitive world.”

His tone matches that of European Commission President Ursula Von der Leyen earlier this month, who declared that “we know that the global trading system has serious deficiencies. I agree with President Trump that others are taking unfair advantage of the current rules. And I am ready to support any efforts to make the global trading system fit for the realities of the global economy. But I also want to be clear: Reaching for tariffs as your first and last tool will not fix it.“

WTO Director-General Ngozi Okonjo-Iweala, speaking at the Council on Foreign Relations, highlighted how there are promising overlaps in looking at the administration’s unilateral objectives and the objectives of multilateral organizations. “In every crisis, there is an opportunity between multilateral objectives and unilateral objectives,” she said. “I do agree with the administration now… when they say there needs to be dynamism in the system, I share that. Some of the criticisms they make, I agree with because I have said the same. We need to get more results. We need to re-dynamize the system. We don’t need to have things cast in cement that may not be relevant to twenty-first-century issues anymore.” 

She also agreed with the White House’s complaint, as stated in an April 2 executive order, that the economic framework supported by the Bretton Woods system “did not result in reciprocity or generally increase domestic consumption in foreign economies relative to domestic consumption in the United States.” In addition, Okonjo-Iweala urged resource-rich African nations to focus more on building value-added enrichment and employment within the region to increase domestic demand, even as she urged China also to increase domestic demand.

US Treasury Secretary Scott Bessent, speaking at the Institute of International Finance, said, “China can start by moving its economy away from export overcapacity and toward supporting its own consumers and domestic demand.” In addition, he said that “the IMF and the World Bank serve critical roles in the international system. And the Trump administration is eager to work with them—so long as they can stay true to their missions.”

Bessent also said that the IMF will need “to call out countries like China that have pursued globally distortive policies and opaque currency practices for many decades” and “call out unsustainable lending practices by certain creditor countries,” adding that “a more sustainable international economic system will be one that better serves the interests of the United States and all other participants in the system.”

In his IMFC-DC Statement, released yesterday, Bessent said, “we need to restore the foundations of the IMF and World Bank. The United States continues to appreciate the value the Bretton Woods Institutions can provide, but they must step back from the expansive policy agendas that stifle their ability to deliver on their core missions.” He added that “for low-income countries in particular, both the IMF and World Bank should promote policy discipline for countries to strengthen their institutions, tackle corruption, and ultimately lay the foundation for sound investment so that they see a future that no longer relies on donor assistance.“

These leaders this week are sending a clear signal that they are not walking away from decades of established relationships and structures that have served the world well. Of course on the other hand, there is no guarantee that China and other countries will agree with the policy trajectory previewed on various stages in Foggy Bottom. Policy volatility will remain a reality for the next few years. But the initial messaging from the first days of the 2025 IMF-World Bank Spring Meetings gives reason for optimism.

APRIL 24 | 8:00 AM ET

In defense of “boring”: A European leader’s message to Trump

Warren Harding, a genial but bland Republican senator from Ohio, won the US presidential election of 1920 behind the campaign slogan “Return to normalcy.” It was a salve for an American electorate, giving him more than 60 percent of the vote, following US President Theodore Roosevelt’s adventurism, American engagement in World War I, then the failed postwar idealism of US President Woodrow Wilson.

“America’s present need is not heroics but healing,” Harding said, “not nostrums but normalcy; not revolution but restoration; not agitation but adjustment; not surgery but serenity; not the dramatic, but the dispassionate…” 

It was certainly unintentional, but I heard echoes of Harding when Valdis Dombrovskis, a Latvian who serves as an executive vice president for the European Commission, came to the Atlantic Council yesterday in defense of “boring” predictability.  While mentioning US President Donald Trump only once in his opening remarks, he underscored what Europe has long seen as its shared virtues with its American partners.  

“You see our fundamental values, individual liberties, democracy, and the rule of law often painted as weakness by authoritarian regimes to prey upon,” said Dombrovskis, who previously served as the European Union’s (EU’s) trade negotiator and is one of Europe’s longest-serving commissioners. “However, in times of turmoil, predictability, the rule of law, and willingness to uphold the rules-based international order become Europe’s greatest assets. We are committed to doing whatever it takes to defend our “boring” democracies, because boring brings certainty and a safe haven when a rules-based order is questioned elsewhere. Our processes allow for debates and consultations to take place, building buy-in from our key stakeholders and enabling us all to pull in the same direction.”

This week’s meetings of the International Monetary Fund (IMF) and World Bank in Washington, DC, are arguably the most important since the financial crisis of 2008-2009, because the Trump administration is seeking fundamental changes to the world trading and financial system not seen since the Bretton Woods agreement of 1944. In that year, the United States and its partners brought down protectionist trade barriers, established a new international monetary system, and laid a foundation for post-World War II global economic cooperation. One of the results was the creation of the IMF and the World Bank.

The last thing the Trump administration appears to want is a return to the normalcy of the eighty years that followed that agreement, arguing that the United States has been taken advantage of by its trading partners and that international system. One can say many things about Trump’s first hundred days in power, but “boring” certainly isn’t one of them. 

Read more

Inflection Points Today

Apr 24, 2025

In defense of ‘boring’: A European leader’s message to Trump

By Frederick Kempe

EU Commissioner for Economy and Productivity Valdis Dombrovskis spoke at the Atlantic Council in Washington on April 23, making the case for greater predictability.

European Union International Financial Institutions

Dispatch from IMF-World Bank Week: Don’t forget the real theme of the week

These meetings mark a milestone for Syria. But more political engagement will be necessary.

How can the IMF return to its core mandate in a vastly different global economy?

Banque de France Governor François Villeroy de Galhau says further rate cuts likely this year

Treasury Secretary Scott Bessent signals conditional support for the IMF and World Bank

Scott Bessent’s calls for reform are reasonable. The IMF should deliver on them.

What ever happened to climate change?

Bloomberg’s Saleha Mohsin: “Everyone wants to talk about the dollar’s reign ending, but no one wants to claim the crown”

EU Commissioner Valdis Dombrovskis on why the EU is “not giving up” on the United States

Catch up with everything happening at the Atlantic Council on day three

Read our day two analysis

APRIL 23 | 6:04 PM ET

Dispatch from IMF-World Bank Week: Don’t forget the real theme of the week

With tariffs and trade continuing to dominate conversations taking place in the halls of these Spring Meetings, it would be easy to forget that there is an official theme, and it isn’t trade: It’s jobs.

That is fitting, in my view. Here’s why:

There are two numbers that I’ve seen over and over again as I dash from building to building on 19th Street. One, of course, is the 2.8 percent global growth forecast, down from 3.3 percent as projected in January. But the other is 1.2 billion: That’s the number of young people set to enter the labor force in emerging markets and developing economies over the next decade. I often see it alongside the number 420 million, which is the estimated number of jobs to be created. Even if the models are way off, the math will not add up.

Beyond this jobs gap equation, jobs are being discussed (including at yesterday’s World Bank flagship event) as a factor, if not a multiplier, in the broader economic growth equation. Jobs are linked to trade and, in many ways, to other dynamics of the global economy. That includes the challenges that many emerging markets and developing economies face, such as debt, demographic pressures, domestic-resource and private-capital mobilization, and facilitating the digital transformation.

You could say we have heard this all before. We have. But in this era of geopolitical fragmentation and geoeconomic tension (some might say “turmoil”), it’s helpful to drive attention and meaningful action toward an agenda that leaders and investors from all regions and income groups can and should rally behind. And job creation is apt for that.

That’s even the case for the United States. US Treasury Secretary Scott Bessent acknowledged as much in his speech this morning, noting that job creation and promoting prosperity are key US interests.

Watch more

APRIL 23 | 4:48 PM ET

These meetings mark a milestone for Syria. But more political engagement will be necessary.

The participation of a Syrian government delegation in the 2025 IMF-World Bank Spring Meetings in Washington, DC, marks a significant milestone in Syria’s efforts to reintegrate into the global economic community. Led by Finance Minister Mohammed Yosr Bernieh and Central Bank Governor Abdelkader Husrieh, this visit represents Syria’s first high-level engagement with these institutions in over two decades.

At the Spring Meetings, Syrian officials are participating in discussions focused on restoring financial support and aid to Syria. Notably, a roundtable hosted by the Saudi Finance Minister Mohammed Al-Jadaan and the World Bank garnered strong international interest in Syria’s reconstruction efforts. Additionally, the United Nations Development Programme (UNDP) has announced plans to deliver $1.3 billion in aid over the next three years to support Syria’s rebuilding initiatives.

One of the critical challenges facing Syria is the existing US sanctions against the country, which have hindered reconstruction efforts. Recent developments indicate a small shift in this dynamic. The UNDP has received a sanctions waiver from the US Treasury Department to raise fifty million dollars for repairing the Deir Ali power plant south of Damascus. Furthermore, Saudi Arabia’s commitment to pay approximately fifteen million dollars in Syria’s arrears to the World Bank is a significant step toward enabling Syria to access funds through the International Development Association, which provides grants to low-income countries.​ Following Syria’s engagements in Washington, the IMF appointed Ron van Rooden as its first mission chief to Syria in fourteen years, signaling a potential revival of economic cooperation aimed at supporting Syria’s recovery.

Despite these steps, more political engagement is necessary to achieve substantive progress. Washington has signaled its hesitancy for more engagement by reportedly limiting Syrian Foreign Minister Asaad Al-Shaibani’s travel visa to New York only and restricting his ability to participate more broadly in meetings in Washington. However, a bipartisan letter issued on Monday by Senators Jeanne Shaheen (D-NH) and Jim Risch (R-ID) of the Senate Foreign Relations Committee reflects a growing bipartisan recognition among US policymakers of the potential benefits of reengaging with Syria under carefully considered conditions. The letter advocates for a strategic approach to US-Syria relations, emphasizing the importance of facilitating dialogue and cooperation to support Syria’s reconstruction and regional stability.

But for momentum to build, both Washington and Damascus must explore more robust diplomatic channels, including incremental confidence-building measures and expanded humanitarian coordination. This could create a framework conducive to deeper economic collaboration, ultimately serving US national security interests while fostering stability in Syria and the region.​ 

APRIL 23 | 3:55 PM ET

How can the IMF return to its core mandate in a vastly different global economy?

At the Institute of International Finance conference today, US Treasury Secretary Scott Bessent said that the United States will exercise strong leadership in the IMF and World Bank to push those institutions to refocus on their core mandates after years of “mission creep.” For the IMF, this means promoting members’ policies that are conducive to sustained and balanced trade. And when trade imbalances occur, the adjustment should be symmetrical for surplus and deficit countries, not aimed only at deficit ones. The IMF’s other critical mission is to provide short-term, temporary assistance to member states in balance-of-payment crises—provided the member in question changes the policies that led to the crisis.

While the push for the Bretton Woods institutions to focus on their core mandates is necessary and timely, many questions remain on how the IMF, in particular, will do that under international conditions drastically different from the ones eighty years ago.

The Bretton Woods Conference in 1944 produced a fixed but adjustable exchange rate system with largely closed capital accounts. Now, many countries want free trade, free capital flows, free exchange rate markets, and monetary sovereignty—even though not all of these can sustainably coexist without tension. So the question is, how can the IMF, with its current toolkit, rectify today’s persistent trade imbalances and prevent them from happening again? It would be a missed opportunity if delegates to this week’s meetings fail to come up with some ideas for how the IMF can accomplish this.

It is also important to clarify the line between the core mandate of short-term temporary assistance and longer-term, structural lending. How should the IMF approach the mandate of giving short-term financing to help members in balance-of-payment crises, given the reality that it can take a long time for countries to make the structural reforms necessary to avoid falling into further crises? At the same time, lending to support structural reforms is a longer and more intrusive process than short-term financing, opening up the IMF to criticisms of mission creep and interfering with borrowing nations’ sovereignty. As the IMF-World Bank Spring Meetings delegates discuss how to best return the IMF to its core mandate, such important issues need to be clarified as soon as possible.

APRIL 23 | 3:39 PM ET

Banque de France Governor François Villeroy de Galhau says further rate cuts likely this year

Read his remarks

Transcript

Apr 24, 2025

France’s François Villeroy de Galhau on a US recession: ‘Bad news for the US is bad news for all, including for Europe’

By Atlantic Council

The governor of the Banque de France, speaking at the Atlantic Council, said that the European Central Bank would likely cut interest rates further this year.

Europe & Eurasia European Union

APRIL 23 | 2:43 PM ET

Treasury Secretary Scott Bessent signals conditional support for the IMF and World Bank

One might be tempted to think—after Treasury Secretary Bessent’s remarks at the Institute of International Finance today—“another US administration, another call for Bretton Woods reforms.” On the surface, the speech does not seem fundamentally different from ones heard during previous administrations, with remarks that reminisce about the original Bretton Woods Conference, convey support for the mission of the institutions, and call upon the institutions to focus on their core mandate.

But it would be wrong to understand these remarks as a signal that the role of the IMF and World Bank will remain unchanged over the coming years. Instead, the secretary’s speech opens up fundamental challenges for the IMF and World Bank, both to their identity and their futures as global multilateral organizations.

First, it is not clear that the continued support of the Bretton Woods institutions expressed today will be the final word of the US administration. The White House is conducting a review of US membership in international organizations, and there are voices in the administration that would prefer the United States withdraw from the IMF and World Bank. While Bessent’s speech is an important opening statement, he will need to be able to point to concrete deliverables in order to win the internal debate against the isolationist wing in the US government.

Second, a return of each institution to its “core mandate” would involve a significant change in activities, running counter to the objectives of a large part of the IMF and World Bank’s membership. Eliminating workstreams on climate policies and social issues would imply a 180-degree turn for the current management of the institutions and the climate-conscious governments that have supported them in recent years; it would also mark such a turn for the constituency of developing countries that benefited from subsidized lending with relatively easy conditionality in recent years.

Third, for the IMF, the Treasury secretary’s missive to “call out countries like China that have pursued globally distortive policies and opaque currency practices” is reminiscent of an episode in the late 2000s, when the IMF was called upon to speak out more forcefully against Beijing’s exchange-rate practices. The result then was a refusal by China to meet its Article IV obligations, a standoff that was only resolved after the IMF softened its stance a few years later.

This is not to say that the United States does not have a valid point. The IMF has been reluctant to call out China for its distorting trade practices and could have been more attentive in looking into accusations that China has also been unduly managing its exchange rate. Given the lack of an explicit mandate on trade policy issues, and the need to work with government-provided data, the IMF will have to think carefully how it can accommodate the demands of the US government, and it will likely run into bitter resistance from Chinese authorities along the way. The ensuing confrontation could well lead to a breakdown of the IMF’s consensus-based way of operating and perhaps a deeper split in the membership of the institution.

Fourth, Bessent also called on the IMF to be tougher in enforcing conditionality for its loans and for the World Bank to cease lending to countries that no longer meet its eligibility criteria. Again, the United States has a valid point here, but it will result in a conflict with European countries that will worry about economic development in African partner countries (due in part to migration pressures across the Mediterranean). And China would, of course, benefit if development lending from multilateral institutions shrinks at a time when official development assistance is already on the decline.

In sum, the secretary’s speech, while providing much welcome support for the IMF and World Bank, has raised a host of issues that will require tough decisions within a relatively short timeframe. Expect intense meetings of financial diplomats to continue long after the flags in front of the IMF building have been put back into storage, awaiting the next formal gathering of the IMF and World Bank in October.

APRIL 23 | 2:11 PM ET

Scott Bessent’s calls for reform are reasonable. The IMF should deliver on them.

Today’s remarks by Treasury Secretary Scott Bessent at the Institute of International Finance were probably more closely watched than many of the IMF-World Bank official events. The remarks represented the first real statement of the Trump administration’s priorities for the Bretton Woods institutions. 

Bessent made clear that the Trump administration remains committed to maintaining its economic leadership in the world and in the international financial institutions. You could almost hear the huge sigh of relief coming from the institutions on 19th Street following this comment. Bessent also steered clear of grandiose proposals to reform the core mandates of the World Bank and IMF. Instead, his remarks made clear that both institutions have “enduring value,” and the focus should instead be on limiting “mission creep.” Another good sign that the Trump administration wants to work with, rather than step back from, the Bretton Woods institutions.

Some of Bessent’s key messages echo points delivered in the IMF managing director’s curtain-raiser last week, another welcome sign of potential alignment between the IMF and its largest shareholder. In short, the current global economic model is not sustainable, and large and persistent external imbalances need to be addressed. Bessent’s call on China to stop relying on overcapacity and exports to grow its economy could have been lifted straight from a speech by former Treasury Secretary Janet Yellen. But Bessent did something more novel by emphasizing that the United States also needs to rebalance and by calling on the IMF to critique both the United States and surplus economies. I could not agree more that the IMF’s External Sector Report needs to be more direct on what countries can do to address unsustainable imbalances. 

Other reforms called for in the speech urge the IMF to execute its mandate of temporary lending, call out unsustainable lending practices, and hold countries to account for not delivering on reforms. Again, these are not new messages from the United States. My question is whether IMF management, alongside its executive board, will feel more urgency to fulfill these types of reforms. I certainly hope so.

APRIL 23 | 1:37 PM ET

What ever happened to climate change?

At the 2024 Annual Meetings, climate change appeared to be front and center on the IMF agenda. Before the gatherings, the Fund released papers with provocative titles such as “Destination net zero: The urgent need for a global carbon tax on aviation and shipping” and “Sleepwalking to the cliff edge?: A wake-up call for global climate action.” The World Economic Outlook (WEO) elevated “combating climate change” to equal status with the task of promoting medium-term global growth.

But at these spring meetings, climate change is not to be seen—no recent papers and only six brief mentions in the first chapter of the WEO, including a single paragraph at the very end of the section on medium-term growth.

The IMF certainly has no hard and fast rules on what should be addressed in the WEO. With global economic and financial uncertainty demanding the attention of world leaders, other pressing issues also get short shrift this spring. For example, “poverty” gets few mentions. But downgrading attention on climate change appears to reflect a conscious decision at a moment when the United States, the Fund’s largest shareholder, is rejecting policies intended to address climate-related issues.

Speaking at the Institute of International Finance today, US Treasury Secretary Scott Bessent made clear the Trump administration’s view of climate issues on the agenda of the IMF. “Now I know ‘sustainability’ is a popular term around here. But I’m not talking about climate change or carbon footprints,” he said. “I’m talking about economic and financial sustainability… International financial institutions must be singularly focused on upholding this kind of sustainability if they are to succeed in their missions.”

The obvious question then is whether the IMF will respond by shifting away from climate-change mitigation in its core work of advising governments and lending.

APRIL 23 | 1:21 PM ET

Bloomberg’s Saleha Mohsin: “Everyone wants to talk about the dollar’s reign ending, but no one wants to claim the crown”

APRIL 23 | 11:10 AM ET

EU Commissioner Valdis Dombrovskis on why the EU is “not giving up” on the United States

Read the full transcript

Transcript

Apr 23, 2025

EU Commissioner Valdis Dombrovskis: With the rules-based order in question, Europe’s ‘boring democracies’ offer ‘certainty and a safe haven’

By Atlantic Council

At an Atlantic Council event on the sidelines of the IMF-World Bank Spring Meetings, the commissioner talked about the EU-US relationship, saying the bloc won’t give up on its transatlantic partner.

European Union Ukraine

APRIL 23 | 9:10 AM ET

Catch up with everything happening at the Atlantic Council on day three

Turkish Minister of Treasury and Finance Mehmet Şimşek: “Global trade fragmentation cannot be good for anyone”

Economy and Finance Minister Felipe Chapman on Panama’s relationship with the United States

Mapping Washington’s and Beijing’s next moves in the trade war

The Global Financial Stability Report highlights strains in the US Treasury bond market

Dispatch from IMF-World Bank Week: Behind the World Economic Outlook’s new call for “rebalancing”

The flagship reports walk a fine line

Ukraine’s Serhiy Marchenko: Why not discuss the seizure of Russian assets?

We’ve seen these risks before

Pakistan’s Muhammad Aurangzeb: Working with the US on commerce and trade is an “opportunity” for constructive engagement

What to know as China’s and the IMF’s forecasts continue to diverge

The IMF released its World Economic Outlook. Let the debate begin.

No recession, says IMF. That’s good news—but perhaps not as good as it sounds.

Catch up with everything happening at the Atlantic Council on day two

Read our day one analysis

APRIL 22 | 9:06 PM ET

Turkish Minister of Treasury and Finance Mehmet Şimşek: “Global trade fragmentation cannot be good for anyone”

APRIL 22 | 6:03 PM ET

Economy and Finance Minister Felipe Chapman on Panama’s relationship with the United States

APRIL 22 | 5:17 PM ET

Mapping Washington’s and Beijing’s next moves in the trade war

APRIL 22 | 5:01 PM ET

The Global Financial Stability Report highlights strains in the US Treasury bond market

The IMF’s Global Financial Stability Report (GFSR), released today, comprehensively describes the market turmoil triggered by the tariff war. So far, financial market conditions have been orderly, but risks of further asset price losses remain elevated.

Yields on US Treasury bonds have risen, lowering bond prices, contrary to their usual behavior when investors have flocked to them as safe haven assets like in previous bouts of market turmoil. The GFSR highlights the growing strains in the intermediation capacity of broker-dealers—which bid for Treasury securities at issuance to distribute to investors—in the Treasury market. In particular, the holding of Treasury securities has overburdened the balance sheets of broker-dealers—rising from just above 100 percent in 2008 to more than 400 percent in 2024. Repo rates’ heightened sensitivity to the volume of issuance also suggests that broker-dealers’ intermediation capacity may approach its limit. This has contributed to the growing illiquidity observed in the Treasury bond market, which will eventually make it less efficient and raise US financing costs.

Moreover, hedge funds have significantly piled into highly leveraged basis trades—taking long positions in Treasury futures contracts while shorting the cash market. Rising bond yields (or falling bond prices) have caused losses, forcing many hedge funds to liquidate their positions, amplifying bond price declines.

Many US banks have attributed the strains on broker-dealers’ balance sheets to regulatory constraints—especially the Supplementary Leverage Ratio (SLR)—and have argued for a relaxation or even removal of the SLR. At present, it looks like banks are making headway in their deregulation push under the Trump administration against a full implementation of Basel III, a proposed international banking regulatory framework. Similar demands have been made by bankers and some officials in the European Union as well.

However, banks’ deregulation efforts, which are enjoying political tailwinds in the United States, are at odds with the GFSR’s recommendations that member countries fully implement international prudential standards, including Basel III and the SLR. It will be interesting to see how the IMF reconciles these differences.

APRIL 22 | 3:19 PM ET

Dispatch from IMF-World Bank Week: Behind the World Economic Outlook’s new call for “rebalancing”

The IMF released its latest World Economic Outlook (WEO) today, downgrading its estimates for global economic growth this year and next, following the beginning of the tariff war and the considerable policy uncertainty surrounding it. Global growth projections for 2025 dropped 0.5 percentage points; US growth estimates are down 0.9 percentage points, while China’s have dropped 0.6 percentage points.

As Managing Director Kristalina Georgieva put it in her curtain-raiser speech last week: “Uncertainty is costly.”

Here at IMF HQ2, people are abuzz with worry about these downgrades. But those downgrades are old news, soft-launched at Georgieva’s speech last week.

Instead, here’s what I’m focused on: To deal with the tariff war and its negative impacts, the IMF—in the WEO—recommends that member countries “reform and rebalance,” sorting out imbalances between saving and investment at home (looking at you, United States) and imbalances between domestic consumption and production (what China needs to work on). It also calls on developing countries to more effectively mobilize domestic resources. Such reforms would balance out trade relationships and make them more sustainable, benefiting all.

Those recommendations are all well and good, but the IMF has not explained how it expects countries to be able to make these reforms. These countries have failed to make recommended reforms in the past when the international environment was much more benign, including during previous eras of low interest rates.

By highlighting the importance of balanced trade, the IMF has harkened back to its original mandate, formulated at the Bretton Woods Conference in 1944. And that is a good thing: Persistent trade imbalances (mainly with countries such as China and Germany posting surpluses while others, mainly the United States, incur deficits) have made the trading system unsustainable, both practically and—as the United States’ unilateral tariff moves show—politically.

Watch more

APRIL 22 | 3:07 PM ET

The flagship reports walk a fine line

The IMF faced some unique challenges in drafting this April’s World Economic Outlook (WEO) and Global Financial Stability Report (GFSR). The recent rapid trade and market developments make it next to impossible to produce a reliable baseline forecast for global growth. The IMF also had to walk a fine line in assessing the impacts of US actions without too overtly criticizing its largest shareholder—not an easy task on both counts. 

In this context, the IMF’s flagship reports do an admirable job of striking a balance between highlighting significant risks to the global economy from recent trade actions while also noting that markets have remained broadly resilient. The WEO’s “reference forecast” downgrades global growth 0.8 percent across 2025 and 2026, and growth forecasts for almost every country are also downgraded. But the WEO does not go so far as to forecast a global recession, and the IMF’s Pierre-Olivier Gourinchas stated in his remarks that financial markets have largely been resilient in the face of recent shocks. Likewise, the GFSR highlights recent volatility and elevated financial-stability risks without declaring a financial crisis to be imminent.

But the flagships do not shy away from laying out risks should trade tensions persist. Scrolling down in the WEO to page 33 (Box 1.1), the IMF lays out a more dire scenario from an extension of the US Tax Cuts and Jobs Act, continued weak domestic demand in China, and the lack of productivity growth in Europe. The GFSR highlights forward-looking vulnerabilities from a correction of asset prices and turbulence in sovereign bond markets.

The real message from both documents is heightened uncertainty. In fact, across the WEO and GFSR, the word “uncertainty” appears more than one hundred times. This message is on point, as uncertainty abounds and poses its own strains on the global economy.  But how countries, including advanced economies, deal with this uncertainty will be the real determinant for future global growth.

APRIL 22 | 2:34 PM ET

Ukraine’s Serhiy Marchenko: Why not discuss the seizure of Russian assets?

APRIL 22 | 2:02 PM ET

We’ve seen these risks before

The IMF’s flagship reports have achieved a remarkable feat—bringing a clear-eyed view to what recent tariff announcements and financial volatility in recent weeks imply for the global economy, without pretending to know much about what will happen in the near future.

The 0.5 percentage-point drop in projections for global growth was expected, following a slowing in the global economy in recent months and the April 2 US tariff announcements. Interestingly, the suspension of many US tariffs, increases in the US tariff rate on China, and Chinese tariff increases in response have not led to a forecast upgrade but rather changed the composition of growth away from the United States and China and toward other countries.

Focusing on specific numbers does not yield much insight, however, as both the World Economic Outlook (WEO) and Global Financial Stability Report are clear on the uncertainty that still prevails. Further asset price corrections in the United States (where share prices still look expensive), coupled with higher interest rates (due to impending fiscal stimulus) and exchange rate fluctuations, have the potential to create significant shocks that could destabilize financial markets. Emerging markets could be in for a rude shock, but the prospects for advanced economies with high debt are not much better, given leveraged balance sheets and strong interlinkages between financial institutions and other market participants that could quickly propagate shocks throughout the system.

Hence, there should be no illusion about the risks facing the world economy. Such risks are reminiscent of the 2008 financial crisis, and continued uncertainty about tariffs and other policies could move markets closer to the abyss. Uncertainty goes in both directions, however. The WEO rightly points out that a resolution of the tariff issue and an end to the Ukraine war, however improbable right now, could provide a major boost for the global outlook. Whether global projections become reality, therefore, depends largely on actions being taken by the White House over the coming months.

APRIL 22 | 1:55 PM ET

Pakistan’s Muhammad Aurangzeb: Working with the US on commerce and trade is an “opportunity” for constructive engagement

APRIL 22 | 1:52 PM ET

What to know as China’s and the IMF’s forecasts continue to diverge

The IMF forecast of 4 percent growth for China both this year and in 2026 probably won’t go over well in Beijing.

The IMF’s World Economic Outlook (WEO) number for China’s projected growth is down from its January forecast of 4.6 percent. That puts the IMF more at odds with China’s official forecast of “about 5 percent” growth, released last month. It also contrasts with last week’s announcement out of Beijing that the Chinese economy grew 5.4 percent during the first quarter as exporters tried to get ahead of US tariffs (a result that was released after the WEO’s drafting ended). The IMF now puts China’s growth last year at five percent, which accords with the government’s figure.

IMF Economic Counsellor Pierre-Olivier Gourinchas told reporters that US tariffs actually will take a 1.3 percentage-point bite out of China’s growth this year, but that fiscal expansion announced by Beijing last month will offset some of that loss in momentum. However, the WEO says that China is still struggling to shift away from export-driven growth: “The rebalancing of growth drivers from investment and net exports toward consumption has paused amid continuing deflationary pressures and high household saving.” Small wonder then that the IMF is now forecasting that “stronger deflationary forces” will result in zero inflation this year, down from the IMF’s earlier forecast of 0.8 percent inflation. The IMF’s China growth forecast is at the midpoint of projections from foreign investment banks. Goldman Sachs and Nomura forecast 4 percent, Citi and Morgan Stanley predict 4.2 percent, while UBS projects 3.4 percent. By contrast, the Rhodium Group is seeing the possibility of China’s growth being stronger than last year’s 2.4 to 2.8 percent growth (according to Rhodium Group’s own estimates).

APRIL 22 | 11:40 AM ET

The IMF released its World Economic Outlook. Let the debate begin.

The latest IMF World Economic Outlook (WEO), released today, has three separate projections for global growth, each based on different outcomes for the Trump administration’s tariffs. The projection the WEO’s authors emphasized in their press conference this morning (which they call a “reference forecast”) is based on the impact of the tariff increases announced between February 1 and April 4 and sees global growth of between 2.8 percent and 3 percent this year. Overall, that represents about a 0.5 percentage point cut in the IMF’s growth forecast from its last WEO update released in January.

There is a cottage industry of economists who dissect WEO forecasts, many of whom view their IMF brethren as being too inclined to accentuate the positive. The latest of these critiques came last weekend from Alex Isakov and Adriana Dupita at Bloomberg Economics. “In the four large crises we studied,” they wrote, “the fund’s initial assessment of the immediate impact on global growth understated it by 0.5 percentage points. However much the IMF may downgrade the growth forecasts to start, history suggests the ultimate blow will be worse.”

That said, the IMF’s take hardly falls into the realm of Pollyannaish forecasting. IMF Economic Counsellor Pierre-Olivier Gourinchas made it clear at the press conference this morning that the risks facing the global economy lean “firmly to the downside,” with the risk of a worldwide recession currently at 30 percent, up from 17 percent at the time of the WEO released in October 2024.

APRIL 22 | 10:03 AM ET

No recession, says IMF. That’s good news—but perhaps not as good as it sounds.

This morning, while launching the new World Economic Outlook, IMF Chief Economist Pierre-Olivier Gourinchas said that “while we are not projecting a global downturn, the risk it may happen this year [has] increased substantially.”

But what is a global downturn or, to use a more ominous term, a global recession?

In an advanced economy, such as the United States, a recession is usually defined as two successive quarters of negative gross domestic product (GDP) growth. Not all countries use that standard, but most include negative GDP growth as part of the definition of a recession. But it’s different when you are talking about the global economy. Because many developing and emerging markets can grow at 5 percent or more during a given year, a global recession can occur even when overall global GDP growth is positive. Think of it like this—if your car only goes 20 mph, going to 0 mph is a major problem.

But it’s also a problem if your car is going 40 mph and you suddenly can only drive at 20 mph.

The IMF has a broad range of criteria it uses to try to determine a global recession, including a “deterioration” in macroeconomic indicators such as trade, capital flows, and employment. Translation? They know it when they see it. When I was at the IMF, there was a debate about whether GDP growth under 2.5 percent would constitute a recession. It seems like today the IMF has made a determination about what this looks like in the current situation—2 percent GDP growth—although they call it a global economic downturn.

Pay close attention to how Georgieva answers this question in her press conference later this week. And just because the global economy isn’t in a recession (or global downturn) by the IMF’s standards at the moment, it doesn’t mean in a few months we won’t cross the threshold.

This post was updated at 1:20 p.m. to clarify the IMF’s position on a global economic downturn.

APRIL 22 | 8:58 AM ET

Catch up with everything happening at the Atlantic Council on day two

How countries are reacting to the trade war

Dispatch from IMF-World Bank Week: The “stealth meetings” kick off

Our experts outline the debates and topics on the minds of global finance leaders this week

Read earlier analysis

APRIL 21 | 8:52 PM ET

How countries are reacting to the trade war

As central bank governors and finance ministers gather in Washington, DC, for the IMF-World Bank Spring Meetings, they will be engaging in some of the most important trade negotiations since the creation of the Bretton Woods institutions in 1944.

History offers some perspective: In July 1930, after US President Herbert Hoover signed the Smoot-Hawley Tariff Act, a range of countries immediately retaliated against the United States, including France, Mexico, Spain, Japan, Italy, and Canada. Others, such as the United Kingdom, chose negotiation instead. 

Today, the GeoEconomics Center has a Trade War Index, tracking countries’ policy actions and rhetoric in response to the Trump administration’s tariffs as central bank governors and finance ministers prepare to meet their US counterparts.

In this index, countries receive scores from -1 to +1 based on their responses. Take Vietnam, for example: It scored a +1 on policy after the country’s officials sent Trump a letter offering to eliminate tariffs on US imports (though this offer has already been rejected by the United States) and followed up by dispatching a special envoy to Washington to keep talks moving.

On the rhetorical front, Vietnamese trade officials called the tariffs “unfair” but focused their comments on domestic impacts rather than directly criticizing the United States—earning the country a -0.5 on the communication scale.

Separating policy from rhetoric reveals how these governors and finance ministers are approaching the negotiation table. Are they feeling domestic pressure to respond? Do they believe they have leverage over the United States? How much economic pain can they withstand?

Countries such as India and Mexico know there is an enormous amount at stake. Their leaders have thus far proven willing to make both conciliatory statements and concessions to Trump in the hopes of securing a deal. Global markets are watching nervously. The outcome of the sideline negotiations at these Spring Meetings will signal whether the White House is truly in deal-making mode or whether, as we have argued at the GeoEconomics Center, many of these tariffs are in fact here to stay.

APRIL 21 | 4:57 PM ET

Dispatch from IMF-World Bank Week: The “stealth meetings” kick off

The IMF-World Bank Spring Meetings have long been marked by pageantry. The Washington headquarters are normally draped with banners. Cultural events have competed with panel discussions on headline economic issues featuring government ministers, captains of finance, and Nobel laureates. Over the years, the event has earned the moniker “Davos on the Potomac” among jaded staffers.

But this year’s gathering is very different. Call it the “stealth meetings.” The signage is gone from outside the building, and inside is a bare-bones schedule of panels. 

The tone is somber—and small wonder why. Just blocks away from the meetings sits the White House, where US President Donald Trump has spent his first one hundred days in office disrupting the global economy with tariffs unseen for a century. The United States is pulling back from international organizations, and its support for issues such as climate-change mitigation and poverty reduction is in question. Its position on the role of the IMF and World Bank in a rapidly changing international economy is unknown.

With the outlook for global growth clouded by the tariffs, all eyes turn to tomorrow’s release of the IMF’s World Economic Outlook (WEO). In last week’s curtain-raiser speech for the meetings, IMF Managing Director Kristalina Georgieva said that the WEO’s growth projections “will include notable markdowns, but not recession,” along with increases in the inflation forecast for “some countries.” Global recessions are relatively rare; the last occurred in the aftermath of the 2008 Global Financial Crisis. But there is plenty of room in a forecast of slower growth for individual countries to fall into recession—including some of the world’s largest economies. 

To break down the WEO and all the other news from the week, keep checking out our analysis throughout the week.

APRIL 21 | 4:31 PM ET

Our experts outline the debates and topics on the minds of global finance leaders this week

Spring Meetings unlike others—and not just because of trade

Why these meetings are existential for the IMF and World Bank

Dispatch from IMF-World Bank Week: A fractured foundation

Three ways to think about Trump’s tariffs

What to make of Argentina’s new $20 billion financial rescue

The true impact of Trump’s tariff war, beyond the stock market

No one is coming to save the global economy

Trump can make the IMF more effective

APRIL 20 | 5:15 PM ET

Spring Meetings unlike others—and not just because of trade

In Washington, DC, the flowers are blooming, the skies are blue, and the streets are filled with finance ministers and central bank governors from around the world.

The scene at the start of this year’s IMF-World Bank Spring Meetings is familiar, but the context could not be more different. Questions about tariffs, trade wars, and the Trump administration’s broader stance on multilateralism abound. IMF Managing Director Kristalina Georgieva kicked off the Spring Meetings with her curtain raiser last week, and she did not shy away from making clear that trade tensions and the on-again, off-again tariff increases generate significant risks for growth and productivity. She rightly pointed out that smaller countries will be caught in the crosshairs and need to put their own houses in order to withstand trade shocks.

But what was more notable was Georgieva’s focus on macroeconomic imbalances, shorthand for the disparity seen between, for example, the massive current account deficits of the United States and the surpluses of China, the European Union, and Japan. These imbalances have gotten scant attention from the IMF in recent years, despite being a persistent issue for decades. The IMF’s latest External Sector Report declared that imbalances were receding.

Yet macroeconomic imbalances represent a key element of US complaints about the unfairness of the international trading system. Surplus countries have relied on US import demand to fuel growth for years, and the United States has played its part by sustaining large fiscal deficits. Last week’s speech rightly brought this issue back to the forefront.

For a sense of how far the IMF will take this message, pay close attention to the World Economic Outlook, Global Policy Agenda, and International Monetary Fund Committee (IMFC) communiqué, which will all be released later this week.

APRIL 20 | 4:52 PM ET

Why these meetings are existential for the IMF and World Bank

While the trade war is top of mind for delegates at the IMF-WB 2025 Spring Meetings, there is also concern about US policy towards the two Bretton Woods institutions.

It isn’t yet clear what that policy will be—it will depend on the conclusions of the review of US participation in multilateral organizations, the findings of which are due in August. From my discussions with individuals who will be participating in the IMF-World Bank meetings this week, I could sense worry about a number of possible US policy stances, ranging from insistence that the two institutions strictly focus on their core mandates (reversing a perceived mission creep going on for some time) to US withdrawal from one or both institutions.

Since the United States is the largest economy in the world and the biggest shareholder of the IMF and World Bank, these institutions can only function effectively with the constructive engagement and leadership of the United States. Thus, this year’s spring meetings are of existential importance to the IMF and World Bank. While going through the public agenda, delegates should spend time to discuss and find ways to address the concerns raised by the US administration with minimal negative spillovers for the rest of the world: including the US concern about persistent trade imbalances, which it attributes to unfair trade practices, including high tariffs and other non-tariff measures, implemented by other countries. Progress in these discussions will be important to retain active US involvement in the two institutions.

For example, as a part of such progress, the IMF could put greater emphasis on its recommendations to countries running persistent current-account surpluses to make adjustments, including by strengthening their currencies, to promote more balanced trade relations over time, instead of putting the burden of adjustment solely on deficit countries.

The open, rules-based trading system—which has promoted aggregate world economic growth but failed to equitably distribute the fruits of free trade—is unraveling. Usual calls for member countries to lower tariffs and walk back other protectionist measures won’t be sufficient to stop it.

APRIL 20 | 3:16 PM ET

Dispatch from IMF-World Bank Week: A fractured foundation

If you’re at Dulles Airport this evening, look around. You might see one of the world’s finance ministers and central bank governors, representing over 190 countries, who are arriving for the most important IMF-World Bank Meetings since the 2008 Global Financial Crisis.

They land in a very different Washington than the one they left in October. US President Donald Trump has launched a global trade war, and, as a consequence, the IMF is set to forecast a major downgrade for the entire global economy. Whether the countries these financial leaders represent end up in a recession—or worse—depends in part on what happens over the next five days.

Usually, delegates’ time at these meetings is focused on a wide range of topics, from sovereign debt to new lending arrangements to financial technology. But this spring, there’s no debate over attendees’ focus: Trade will dominate, as each country looks to meet with the Trump administration to see whether any trade negotiation is viable. The main event will be when senior US and Chinese officials meet, if they do. It would be their first meeting since their countries levied tariffs higher than 100 percent on each other.

But here’s the irony of the week ahead: By engaging in all the bilateral negotiations, these countries are unintentionally undercutting the case for multilateral economic coordination that is the foundation of the Bretton Woods system.

Each country will work to secure the best arrangement for itself and its citizens. None of this would be surprising to the creators of the IMF and World Bank; just look at the minutes from the original conference to see all the wrangling between the forty-four founding nations.

But this is a first: The world’s largest economy, and the one that created the Bretton Woods system in the first place, is trying to completely uproot it.

For every country, the challenge of this week is to not get trapped in the past. There will be time to consider all the successes and failures of the past eighty years. But right now, the international economic order is being reshaped in real time.

That’s what this week is about: not who has complaints about the system—nearly every country has its fair share—but who has the vision for what comes next.

Watch more

APRIL 18 | 2:16 PM ET

Three ways to think about Trump’s tariffs

The second Trump administration has embarked on a novel and aggressive tariff policy, citing a range of economic and national security concerns. Our GeoEconomics Center is monitoring the evolution of these tariffs and providing expert context on the economic conditions driving their creation—along with their real-world impact.

The Trump administration utilizes tariffs in three primary ways, depending on the objectives of any particular action.

1. Negotiation tool: The administration sees tariffs as a way to put pressure on trade partners during negotiations, as well as a potential bargaining chip. Used in this way, tariff rates can increase US leverage and result in new trade agreements, like the US-China Phase One trade deal signed during Trump’s first term.
2. Punitive tool: Trump administration officials have stated that they would like to avoid overuse of financial sanctions as a form of coercive economic statecraft, since they believe it can incentivize countries to reduce their reliance on the US dollar. As an alternative, the Trump administration is relying more on tariffs to “punish” or “sanction,” including for non-trade issues. The administration values the ability to easily escalate the tariff rate and, therefore, its punitive power.
3. Macroeconomic tool: The Trump administration also, more conventionally, wields tariffs in support of a wide range of macroeconomic goals:
   • Protecting domestic industries, such as steel, from unfair trading practices and encouraging domestic manufacturing.
   • Decreasing US trade deficits.
   • Increasing revenue from duties. Of course, the “Catch-22” is that if reshoring is successful, the United States will not be able to increase revenue from import duties.

Explore the full Trump Tariff Tracker

Trump Tariff Tracker

The second Trump administration has embarked on a novel and aggressive tariff policy to address a range of economic and national security concerns. This tracker monitors the evolution of these tariffs and provides expert context on the economic conditions driving their creation—along with their real-world impact.

APRIL 16 | 3:52 PM ET

Four questions (and expert answers) about Argentina’s new $20 billion financial rescue

Buenos Aires is getting a boost. On April 11, the International Monetary Fund (IMF) approved a twenty-billion-dollar, four-year loan to Argentina, with the first twelve billion dollars arriving on April 15. The Inter-American Development Bank (IDB) and World Bank followed up by releasing another $22 billion in financing. In response, Argentina lifted large elements of its currency and capital controls, known as the “cepo,” which had long stifled investment and growth. Marking the twenty-third IMF loan to Argentina since the 1950s, the deal comes as libertarian President Javier Milei has dramatically cut Argentina’s spending in an effort to stabilize government finances. Atlantic Council experts answered four pressing questions about Argentina’s latest financial rescue and the road ahead.

Read their answers

New Atlanticist

Apr 16, 2025

Four questions (and expert answers) about Argentina’s new $20 billion financial rescue

By Martin Mühleisen, Jason Marczak

What exactly did the IMF agree to, and what is required of Argentina? Our experts dive into the deal and map what comes next.

Fiscal and Structural Reform International Financial Institutions

APRIL 11 | 7:22 AM ET

To understand the impact of Trump’s tariff war, watch the bond market and the Fed—not just the stock market

The imposition of US tariffs and retaliatory tariffs by some trading partners, combined with a ninety-day pause of most “reciprocal” tariffs by US President Donald Trump, have led to extreme financial market volatility in recent days. While the equity market gyrations have occurred in relatively orderly market conditions so far, some recent developments have signaled that selling pressure may have spread to other markets—particularly US Treasury securities and short-term US dollar funding. 

To understand the financial stability impacts of the current market turmoil, it is important to monitor the pressure on these markets, which are crucial for the smooth functioning of the global financial system. Left unaddressed, these strains could trigger a freezing up of financial markets, raising the risk of a serious financial crisis.

Continue reading

New Atlanticist

Apr 11, 2025

To understand the impact of Trump’s tariff war, watch the bond market and the Fed—not just the stock market

By Hung Tran

The state of the US Treasuries and US dollar funding markets, as well as actions of the Federal Reserve, are where to focus attention.

Economy & Business Politics & Diplomacy

APRIL 8 | 11:46 AM ET

No one is coming to save the global economy

US President Donald Trump has launched a global economic war without any allies. That’s why—unlike previous economic crises in this century—there is no one coming to save the global economy if the situation starts to unravel.

There is a model to deal with economic and financial crises over the past two decades, and it requires activating the Group of Twenty (G20) and relying on the US Federal Reserve to provide liquidity to a financial system under stress. Neither option will be available in the current challenge.

First, the G20. The G20 was created by the United States and Canada in the late 1990s to bring rising economic powers such as China into the decision-making process and prevent another wave of debt crises like the Mexican peso crisis of 1994 and the Asian financial crisis of 1997. In 2008, as Lehman Brothers collapsed and financial markets around the world began to panic, then President George W. Bush called for an emergency summit of G20 leaders—the first time the heads of state and government from the world’s largest economies had convened.

What followed was one of the great successes of international economic coordination in the twenty-first century—the so-called London Moment, when the G20 agreed to inject five trillion dollars to stabilize the global economy. With this joint coordination, the leaders sent a powerful signal to the rest of the world that they would not let a recession turn into a worldwide depression.

Nearly twelve years later, at the outbreak of the COVID-19 pandemic, the same group of leaders convened to work on debt relief, fiscal stimulus, and—critically—access to vaccines.

Now we face the third major economic shock of the twenty-first century. But this one is fully man-made by one specific policy decision. It could, of course, be undone by a reversal of the decision to send US tariff rates to their highest level in a hundred years. But as I have said since November, Donald Trump is serious about tariffs, they are not only a negotiating tool, and that means many of them are likely here to stay.

There will be no “London Moment” this time around. The United States can’t call for a coordinated response to a trade war it initiated—one that is predicated on the idea that the rest of the world is taking advantage of the United States. 

Continue reading

New Atlanticist

Apr 8, 2025

No one is coming to save the global economy

By Josh Lipsky

Neither the Group of Twenty nor the Federal Reserve should be expected to use their playbook from previous economic crises to respond to economic shocks caused by US tariffs.

China Economy & Business

APRIL 8 | 10:15 AM ET

The IMF is a good deal for the US. Here’s how Trump can help make it even more effective.

US President Donald Trump’s stance on foreign aid has raised questions as to what approach he will take with regard to international financial institutions, and in particular the International Monetary Fund (IMF). But Trump also takes pride in recognizing a good deal when he sees one, and the IMF is indeed a good deal for the United States and the American people. The cost of US participation is low, but the role that the IMF plays in fighting financial crises is invaluable to supporting the US economy. 

After four years representing the United States at the IMF, I can attest that the United States plays an outsized role at the institution. As US executive director, I engaged regularly with counterparts in regions such as Africa, the Middle East, and Latin America to help shape and support IMF lending in a manner that helped advance US interests and reduced Chinese influence. In this era of heightened uncertainty, the IMF could benefit from refocusing on its core priorities and helping countries stand on their own feet. Fortunately, the United States is well positioned to push for such reforms from within the institution. Should the United States instead opt to step back from the IMF, it would not only squander one of its most valuable international economic tools but would also open the door for China to play a lead role in an institution that has long supported US interests. 

Continue reading

New Atlanticist

Apr 7, 2025

The IMF is a good deal for the US. Here’s how Trump can help make it even more effective.

By Elizabeth Shortino

The institution provides the United States a significant source of economic leverage, helps prevent financial crises, and serves as a counterweight to China’s influence.

Economy & Business International Financial Institutions

The post Inside the IMF-World Bank Spring Meetings as leaders navigate the global trade war appeared first on Atlantic Council.

The post Lipsky quoted by Marketplace on central bank interest rate decisions appeared first on Atlantic Council.

The post Lipsky quoted in the Washington Post on the economic risks posed by Trump’s initial reciprocal tariff rates appeared first on Atlantic Council.

The post Lipksy quoted in Bloomberg on how Scott Bessent has emerged as the key voice for markets in the Trump administration appeared first on Atlantic Council.

The post Lipsky quoted in AP News on the escalating trade war between the US and China appeared first on Atlantic Council.

The post Mullaney quoted in Politico on the Trump administration’s ability to reach trade deals within the 90-day pause appeared first on Atlantic Council.

The post Lipsky featured in Politico’s podcast EU Confidential on the Trump administration’s reversal on reciprocal tariffs appeared first on Atlantic Council.

The post Nikoladze quoted in DW on the implications of the BlackRock-CK Hutchinson deal appeared first on Atlantic Council.

The post Lipsky interviewed by CNN on US isolation in the global trade war appeared first on Atlantic Council.

The post Busch quoted in Al Jazeera on how the US-China war may unfold and the tools available to China appeared first on Atlantic Council.

The post Lichfield quoted in Le Parisien on how the Trump admin is prioritizing trade negotiations and the impact of market signals on that strategy appeared first on Atlantic Council.

The post Lipsky quoted in New York Times on why there is no one coming to save the global economy if the situation unravels appeared first on Atlantic Council.

The post Lipsky interviewed by CNN on recession risks from Trump’s initial reciprocal tariffs appeared first on Atlantic Council.

The post Tannebaum interviewed by CBS News on the impact of reciprocal tariffs on prices and global trade appeared first on Atlantic Council.

The post Tannebaum interviewed by Bloomberg on China’s approach to Trump’s tariffs and why it’s unlikely to unwind retaliatory measures appeared first on Atlantic Council.

“It’s our declaration of economic independence.” That’s how President Donald Trump described Wednesday’s Rose Garden announcement that the United States will levy 10 percent baseline tariffs on all imported goods. Trump also announced “reciprocal tariffs” on dozens of other countries, including steep rates on major trading partners such as China (54 percent in total), the European Union (20 percent), and Japan (24 percent), though Canada and Mexico were spared from new tariffs. How will these tariffs upend US trade partnerships, international financial markets, and the global economy? And how might the countries hit the hardest retaliate? Our experts at the GeoEconomics Center, which is following each move in its Trump Tariff Tracker, declare their independent assessments below. 

• Josh Lipsky (@joshualipsky): Senior director of the Atlantic Council’s GeoEconomics Center and former adviser to the International Monetary Fund
• L. Daniel Mullaney: Nonresident senior fellow with the Europe Center and GeoEconomics Center, and former assistant US trade representative
• Barbara C. Matthews: Nonresident senior fellow at the GeoEconomics Center and former US Treasury attaché to the European Union

Zooming out

• The historic significance of Wednesday’s actions are clear, Josh tells us: “The United States said the global trading system we helped create no longer works for us.” He notes that these new levies, scheduled to go into effect next week, would raise overall US tariff rates to north of 20 percent—their highest level in a century, exceeding even the Smoot-Hawley era of the 1930s.
• Trump’s tariff announcements underscored that he “sees the world less in terms of allies and adversaries than in terms of countries that run trade deficits with the US versus countries that run trade surpluses,” Josh says. 
• Josh points out that Japan will be tariffed at a much higher rate than Iran. “These decisions are not based on systems of government or military alliances or historical relationships. They are based on a new formula—where trade is the organizing principle behind Trump’s engagement with the world.”

Sign up to receive rapid insight in your inbox from Atlantic Council experts on global events as they unfold.

Zooming in

• The difference in rate assigned to each country “suggests that the tariffs are actually motivated by perceived imbalances in trade relationships” rather than a simple desire to “erect a tariff wall around the United States,” says Dan. For example, he notes that the European Union, which has a $200 billion goods trade deficit with the United States, was tariffed much more than the United Kingdom, which has none.
• An additional executive order closing tariff exemptions for low-value goods from China underscores the national security concerns motivating the tariffs, Barbara tells us. She notes that the administration justified the move “on the grounds that those low-value imports facilitate the fentanyl trade.”
• The especially high tariffs on China are a major reason for the negative overnight market reaction to the announcements, says Josh, as 54 percent is “above and beyond” what Beijing can manage through currency maneuvers. Potential alternative Southeast Asian trading partners such as Vietnam were hit hard as well. “From your Airpods to your Air Jordans, hundreds of products Americans use in day-to-day life are set to get more expensive.”

Response time

• Dan has some advice for European leaders as they deliberate how to respond: “It is unhelpful to castigate the United States for imposing tariffs” and then vow to “strike back” on politically sensitive targets such as Kentucky bourbon and Florida orange juice. He argues that “a more constructive” reaction would be to “rebalance” transatlantic trade obligations by taking an approach similar to a World Trade Organization dispute and withdrawing equivalent concessions with respect to the United States.
• At the same time, Dan adds, European officials should work with the Trump administration to reach accommodations in lieu of tariffs. This could include, for instance, renewing “work on a steel and aluminum arrangement,” cooperating on nonmarket economy policies and practices, and reducing regulatory trade barriers. “We’re in an unprecedented and disruptive era, but there are avenues for restoring balance and building up the transatlantic trade relationship.”
• While countries may opt to impose retaliatory tariffs on the United States, Barbara notes that tariff rates are only part of the picture. “No one wins a trade war,” she cautions, adding that “negotiations based merely on tariff levels will not be sufficient” to address the Trump administration’s other economic and security concerns, such as value-added taxes, currency manipulation, and drug trafficking. Instead, she says, talks with Washington must address “a broad range of security and geoeconomic issues beyond trade policy that the United States has been raising for a number of years.”
• All of these tariff announcements remain subject to change based on negotiations. “Markets need to be ready for a steady stream of policy volatility and adjustments,” says Barbara, “as the terms of trade shift to reflect a new geopolitical balance of power as defined by the United States.”

The post How Trump’s ‘liberation day’ tariffs will transform global trade appeared first on Atlantic Council.

This infographic reflects on trade balances in the broader context of supply chain interdependence. Research shows that Mexico is deeply reliant on US intermediate goods, which means that it imports US inputs that go into more finalized products that are then exported through the USMCA back to the United States. This places Mexico, in particular, in a separate category from all other major US trade partners.

The post Americas economies in-depth: The US-Mexico trade balance in context appeared first on Atlantic Council.

Earlier this month, Hong Kong-based CK Hutchison Holdings announced that it would sell a range of global port assets, including the ones operating in the Panama Canal, to the US private equity firm BlackRock. The deal stunned officials in Hong Kong and their counterparts on the mainland, and not just for the deal’s nearly twenty-three-billion-dollar price tag.

Daily front page headlines in the South China Morning Post detailed the latest twists and turns of the unfolding drama. At the center is the company’s founder, Li Ka-shing. The ninety-six-year-old billionaire began his career selling plastic flowers in the 1950s and helped turn Hong Kong into a hub of global finance. In 2000, he was knighted by Queen Elizabeth and, according to press reports at the time, was considered more powerful than China’s then president, Jiang Zemin. Li took that influence and made a series of brilliantly timed investments in the Chinese mainland, understanding where the economic opportunity would be in the years ahead.

So it’s understandable why Chinese authorities felt blindsided by his decision to sell the port operations to an American company, right after US President Donald Trump claimed in his inaugural address that China was operating the Panama Canal and “we’re taking it back.” But the level of anger is perhaps what is surprising. An op-ed in the pro-Beijing Ta Kung Pao newspaper (which was then republished by Beijing’s Hong Kong and Macau office) called the sale an act of “betrayal of all Chinese people.” More commentaries have followed, which have called it an act of “submission” and “spineless groveling.” The fact that the deal was announced on the eve of the “two sessions,” China’s most important economic and political event of the year, just added insult to injury for Chinese President Xi Jinping and the Chinese Communist Party.

The entire situation puts both Hong Kong authorities and Chinese officials in a difficult spot. If they make any moves to block the sale—and it’s not even clear whether they could—it would confirm some of the worst concerns about the way Western businesses will be treated in Hong Kong following the passage of the National Security Law in 2020. Right now, Hong Kong is working hard to convince the West that it is still one of the world’s most important financial hubs. As a newspaper report the day I left proudly touted, Hong Kong was “still” the number three financial city behind New York and London. That effort becomes more difficult if this sale is a blocked.

On the other hand, Hong Kong has to show that it’s responsive to Beijing’s concerns. That’s likely why Hong Kong’s chief executive, John Lee Ka-chiu, has taken a balanced approach so far, issuing a statement on the need to weigh the legitimate concerns of society and the importance for businesses to follow the legal process. One of his predecessors, Leung Chun-ying, was less diplomatic, saying: “Do merchants have no motherland?”

Now, Hutchison is working to ensure the deal doesn’t get torpedoed. A report in the South China Morning Post last week said Hutchison would offer twenty-five Hong Kong dollars (about three US dollars) per share as a bonus to shareholders if the deal goes through. The news, unsurprisingly, sent the stock soaring.

At stake here is more than just ports. The challenge facing Hutchison is a microcosm of the tension between finance and national security that is about to play out around the world. Consider the facts. After his inauguration in January, Trump made clear that Chinese companies’ ownership of portions of the Panama Canal was unacceptable. At the same time, he launched a trade war that threatened to slow down global commerce—and hurt the profitability of major port operators such as Hutchison. Weeks later, BlackRock negotiated a deal for a range of assets held by Hutchison. Chinese media have been keen to highlight the longstanding friendship between Trump and BlackRock CEO Larry Fink.

So, what is a veteran businessman like Li supposed to do in a situation like this? He can sell his operations at a profit or wait until the situation deteriorates and he has to sell at a potentially lower rate. He (or members of his family now overseeing the day-to-day operations) likely knew the sale would upset the Chinese authorities, but he also couldn’t ask for permission in advance—likely believing that it wouldn’t be given. If Beijing pushed Hutchison to reject the deal, it would only confirm the suspicions Trump has about the national security priority China puts on port operations. It is truly a tangled geoeconomic web. 

The predominant sense in our private conversations during the week was that BlackRock and Hutchison will find a way to seal the deal. There’s too much money at stake, too many aligned interests, and the risks of it failing are too high both for Hutchison and, more importantly, for Hong Kong’s future.

But expect China to find ways to tighten its grip on these kinds of deals going forward. Xi has stated that the world’s reliance on advanced technologies from China would give his country leverage in an economic conflict in the years ahead. Just as important as new technology is hard infrastructure—and Xi knows that, as well. Beijing does not want to be caught blindsided again. The outrage about the ports deal communicated from Beijing in both Chinese and Western media is meant in part to stop any other company from considering something similar. In Hong Kong last week, I could tell that message was being received loud and clear. 

Josh Lipsky is the senior director of the Atlantic Council’s GeoEconomics Center and a former adviser to the International Monetary Fund.

The post Dispatch from Hong Kong: The Panama Canal port sale has put Chinese authorities in a bind appeared first on Atlantic Council.

The post Lipsky quoted in Reuters on tariff escalation in the US-Canada trade war appeared first on Atlantic Council.

In reality, of course, the party—and increasingly the strongman at the top—makes the real decisions, while the NPC largely serves as a performative rubber stamp. The pageantry is important, however, as it demonstrates what the party believes it needs to signal to its people and the world. Five notable signals stood out at this year’s two sessions.

1. Chinese President Xi Jinping is at the apex of his power

For all the pageantry—which, as always, included heartwarming footage of people from across China marching into plenary sessions, some in colorful indigenous costumes—this was a one-man show. The signaling was as much about paying homage to Xi as it was about presenting the NPC. Throughout the NPC—which included work reports from major government agencies—major successes were attributed primarily to Xi. In contrast, major challenges were attributed to China’s outside environment, which is often code for US actions that constrain Beijing. For example, the National Development and Reform Commission, China’s major economic agency, made sure to give Xi credit for its economic achievements in 2024, stating (in bold): “We owe these achievements to General Secretary Xi Jinping, who is at the helm charting the course . . .” Beijing sees no need to pretend that Xi himself is part of the consultative pageantry. He sits high above it.

2. There are two Chinese economies, and Beijing is betting on the stronger horse to pull the country through

At the macro level, if you look at Chinese consumer sentiment or at the Chinese industries suffering from overcapacity, the situation is dire. But, just as in any economy, there are always winners in the mix somewhere. Several high-tech companies are innovating, have access to capital, and are experiencing rapid growth. DeepSeek is one such company, and Beijing has milked that example to the max. When asked at a press conference on March 7 about DeepSeek and US efforts to hold China back in technological innovation, Chinese Foreign Minister Wang Yi responded: “Where there is blockade, there is breakthrough; where there is suppression, there is innovation; where there is the fiercest storm, there is the platform launching China’s science and technology skyward like the Chinese mythological hero Nezha soaring into the heavens.” Beijing is betting on bright lights in the tech sector to pull its economy through its current slump.

Advancing science and technology were major themes present throughout the NPC. Chinese leaders announced the launch of a new high-tech “state venture capital guidance fund” and committed to maintain high research and development spending. But what did not appear, as my colleague Jeremy Mark noted earlier this week, was any serious, trend-bending movement toward supporting Chinese consumers and ramping up domestic spending.

3. Beijing sees US President Donald Trump’s strongman-style foreign policy as an opportunity to paint China as the kinder, better partner

Beijing is facing foreign policy headwinds. China recently became the world’s largest creditor—and an increasingly unforgiving one—at the same time as its outbound investment flows fell. That combo is painting China as an unpopular debt collector across the Global South. Chinese economic coercion is triggering a wave of de-risking. So-called “wolf warrior” diplomacy has scored multiple own goals.

Now, however, Beijing sees Trump’s style as an opportunity to wipe that slate clean. This was clear throughout the Chinese foreign minister’s press conference on March 7, where he framed China as the responsible leader “providing certainty to this uncertain world” and “safeguarding the multilateral free trade system.” In a clear dig at the United States, he stated “those with stronger arms and bigger fists should not be allowed to call the shots.” He left nothing on the shelf, calling out US rhetoric on Gaza and Latin America, stating on the latter that: “What people in [Latin American and Caribbean] countries want is to build their own home, not to become someone’s backyard; what they aspire to is independence and self-decision, not the Monroe Doctrine.”

From Washington’s perspective, it is easy to view this as empty rhetoric given the reality of Beijing’s global bullying. But this is likely what Chinese diplomats are saying behind closed doors in every capital around the world, too. It will resonate in many. Washington should take heed and avoid scoring own goals itself.

4. Combating climate change is not a priority

The NPC work report continued the trend seen since at least 2019, when Beijing began to shift from shutting down and cleaning up its coal plants to viewing coal as its primary stable source of energy. In the report, China committed to “implement a coal production reserve system, continue to increase coal production and supply capacity, and consolidate the basic supporting role of coal.” The report treats coal production as a resource security issue, separate from China’s clean energy, environment, and climate goals.

5. Chinese leaders see no reason to change course

Throughout the two sessions, Chinese leaders applauded 2024 successes and previewed a 2025 plan that is largely a steady onward course with some modifications at the margins. To the extent they acknowledge challenges—particularly economic challenges—they did not tie those to Beijing’s own policies. Instead, they blamed the United States and other outside forces, including a sluggish global economy. That does not bode well for Chinese consumers or the overseas manufacturers struggling to compete with the outbound flow of goods China’s factories are producing at overcapacity and unable to sell at home.

The Trump administration is rolling out wave after wave of tariffs on US imports from China, ostensibly to build leverage for some type of grand bilateral bargain. Throughout the two sessions, Xi and other Chinese leaders signaled they are sticking to their state-managed economic approach and view the United States as their biggest external political risk. If anyone in Washington is still hoping China will put meaningful economic concessions on the table to buy its way out of US tariffs, those folks are not paying close attention to the signals coming out of Beijing.

Melanie Hart is the senior director of the Atlantic Council’s Global China Hub and a former senior advisor for China at the US Department of State.

The post Five takeaways from Beijing’s largest annual political meetings appeared first on Atlantic Council.

Today, Washington is once again chattering about the possibility of a currency deal. This time, the venue may move south for what Trump’s incoming chairman of the Council of Economic Advisers, Stephen Miran, described as a “Mar-a-Lago Accord.” In a September report, Miran declared the overvaluation of the US dollar responsible for the “roots of economic discontent.”

Several in Trump’s inner circle have expressed an interest in devaluing the dollar to address the US trade deficit. Weak-dollar advocates believe that the strong dollar creates international trade imbalances, handicapping US manufacturers. A weaker dollar would make US exports more competitive.

But there’s a key difference between the countries that would gather in Palm Beach today and the group that met in New York in the 1980s—the countries that comprise the US trade deficit.

How will this different constellation impact any potential negotiation? It makes a deal much more complicated.

Miran and others want to use tariffs to get countries to the negotiation table. If these countries are worried enough about the cost of tariffs, Miran thinks they will be willing to make major changes to their currencies that they’d never otherwise consider. But Miran doesn’t stop there. He knows tariffs alone aren’t enough of a stick, so he thinks it is time to put the US security umbrella up for debate.

Miran argues that the security zone should be financed by the beneficiaries, and this can be leveraged to both depreciate the dollar and to mitigate the inflation effect of tariffs. Countries in the security zone should “fund it by buying Treasuries,” especially century bonds, and “unless you swap your bills for bonds, tariffs will keep you out.” US Treasury Secretary Scott Bessent has also discussed the idea that countries can enjoy shared defense as long as there are shared currency goals, while tariffs can be used for negotiation of terms. This administration seems at least open to the idea of linking the US security umbrella with the restructuring of the global trade system to benefit the United States.

The problem, of course, is that the countries the United States has the highest trade deficits with are no longer allies dependent upon this security umbrella. In 1985, the United States provided the security guarantee for France, Germany, Japan, and the United Kingdom. These signatories of the Plaza Accord hosted nearly a fourth of all overseas US military bases in the ’80s. Neither China, nor Mexico, nor Vietnam rely on the US military in 2025.

Without the incentive of shared security, are tariffs enough to push non-allies towards a currency agreement? It doesn’t seem to be for China. A major reason for resistance is that Beijing sees Japan’s experience after the Plaza Accord as a cautionary tale.

The “Japanification” of China?

The Plaza Accord forever altered the trajectory of Japan’s economy. The appreciation of the Japanese yen contributed to bursting Tokyo’s asset bubble and the lost decades of economic stagnation. At least, that is the lingering impression of the 1985 currency agreement in China.

There are certain similarities between Japan’s economic slowdown in the ’90s and the one that China is currently experiencing, such as deflation, low consumer demand, and capital flight. In January, China’s thirty-year government bond fell below that of Japan’s for the first time, and over the weekend, China’s inflation dropped below zero again. China is willing to go to lengths to avoid a “Japanification” of its own economy, including refusing to appreciate the renminbi against the dollar, even if it means weathering a protracted trade war.

China has previously raised concerns about the US dollar’s role as the dominant reserve currency and wouldn’t necessarily complain if the dollar’s preferential position in foreign reserves and global finance weakened. But with persistently sluggish consumer demand, China is still counting on the export sector to help drive economic growth in 2025. Beijing won’t want to risk any changes to the renminbi that would decrease the competitiveness of its exports in the midst of a trade war.

The idea of a Mar-a-Lago Accord is going to appeal to Trump. After all, he was the man who bought the Plaza Hotel in 1988, right after the famous agreement. But getting there is going to require more than just tariffs and a threat to remove security guarantees. China is going to have to see what’s in it for them. And that, so far, remains a mystery.

Josh Lipsky is the senior director of the Atlantic Council GeoEconomics Center and a former adviser to the International Monetary Fund.

Jessie Yin is an Assistant Director with the Atlantic Council GeoEconomics Center.

This post is adapted from the GeoEconomics Center’s weekly Guide to the Global Economy newsletter. If you are interested in getting the newsletter, email SBusch@atlanticcouncil.org

At the intersection of economics, finance, and foreign policy, the GeoEconomics Center is a translation hub with the goal of helping shape a better global economic future.

Learn more

The post Meeting in Mar-a-Lago: Is a new currency deal plausible? appeared first on Atlantic Council.

As the United States abandons international treaties and organizations, including the 2015 Paris Agreement, the World Health Organization (WHO), and the United Nations (UN) Human Rights Council, its apparent disdain for the G20 has raised concerns about the role of the United States in the group. These anxieties are especially salient with the United States scheduled to assume the G20’s presidency next year.

A G20 without the United States or its constructive engagement and leadership will be much weaker. It will struggle to sustain broad representation and multilateral cooperation, as well as effective policy coordination and resource mobilization to address pressing global challenges. Even if the rest of the member countries try to carry on, they will struggle to do so on their own.

Tension between the United States and the G20

The current Trump administration has proved to be more ideological than the purely transactional first Trump presidency. During his first term in office, President Trump used the G20 to complain about unfair trade practices by other countries vis-a-vis the United States. He promoted reciprocal dealing under threats of tariffs to rectify persistent US trade deficits as well as implementing policies of tax cuts and deregulation.

In his second term, the Trump administration has actively pushed its anti-DEI (diversity, equality, and inclusion) and anti-climate change agenda, both domestically and internationally. Furthermore, the Trump administration has suspended all its foreign aid pending review, while drastically downsizing the US Agency for International Development’s budget, operations, and staffing. In addition, other major Western countries such as the United Kingdom (UK) have also reprioritized their budgets away from international aid in favor of increased defense spending. The UK alone decided to cut its aid budget from 0.5 percent of its gross national income (GNI) to 0.3 percent by 2027. These actions have left many developing and low-income countries facing sharp funding shortfalls in their development and climate efforts, triggering a health care financing crisis in many of them.

Moreover, according to Project 2025, which the administration has faithfully implemented so far, the United States would consider withdrawing from most international organizations. Republican Senator Mike Lee has already introduced a bill to withdraw from United Nations entirely, and Project 2025 also suggests withdrawing from the International Monetary Fund and the World Bank. Each of these institutions is commonly considered as being under US influence and carrying out activities primarily consistent with US interests. The Project’s authors, instead, believe that these organizations have done more harm than good to the world and the United States.

Guided by this belief, Secretary of State Marco Rubio boycotted the G20 foreign ministerial meeting. He criticized host country South Africa for “doing bad things” by using the G20 to promote DEI and climate activities, adding that his “job is to advance America’s national interests, not to waste taxpayer money or coddle anti-Americanism.” If the United States is serious about promoting its agenda of opposing “solidarity, equality, and sustainability” and resisting mobilizing climate finance to help developing countries—among the core objectives of the G20—it would undermine the effectiveness and relevance of the group. If the United States were to withdraw from the G20, that would seriously dent the group’s aspiration to be the premier international forum for policy coordination in the interests of the global economy. If the remaining countries were to carry on despite the United States’ withdrawal, the relative influences in the G19 would change significantly. Global south countries, driven by China and the BRICS, would gain influence at the expense of the West minus the US.

The G20 without the United States?

Generally speaking, whether the United States remains in the G20 but working at cross-purposes or withdraws from it entirely, the group would struggle to fulfill its objectives. First, without the active engagement and leadership of the world’s largest economy, it would be difficult to coordinate policy actions. The group would lack the coverage and influence to deal with global crises—as it did, for example, in the 2008 global financial crisis when the G20 played a key role in forging an internationally coordinated policy response.

Second, without contributions from the United States, G20 efforts to mobilize financing to help developing and low-income countries in their development and climate endeavors would also be significantly limited. Cuts in foreign aid budgets by the United States (the largest foreign aid contributor in terms of volume at $65 billion in 2023) and UK (the fifth largest contributor at $19 billion) are significant. Those cuts will further reduce the already insufficient Official Development Aid (ODA) from developed countries—currently at 0.37 percent of their GNI compared to the UN target of 0.7 percent. 

Furthermore, the current focus on raising defense spending, along with large budget deficits and public debt in many Western countries, means that calls to increase capital for multinational development banks such as the World Bank would likely be disappointed. Developing countries will likely face growing shortages of financial assistance for development and climate efforts—which is especially worrisome given lackluster investment from the private sector in those regions. It’s important to keep in mind that the multiplier effect of public investment in developing countries to catalyze private sector investment is very low—generally less than one time, and not a multiple as many political and MDB leaders have hoped. Most importantly, US policy actions would undermine the sense of mutual trust among G20 countries, essential for any multilateral cooperation. Other countries in the group, effectively the G19, will most likely try to carry on. However, on top of the two drawbacks mentioned above, it is difficult to see how they can sustain or rebuild mutual trust in a deeply polarized world. In short, how they could continue to work together despite the United States current posturing would be an important test case of the realignment of international relationships as the post-war world order crumbles.

Hung Tran is a nonresident senior fellow at the Atlantic Council’s Geoeconomics Center and senior fellow at the Policy Center for the New South; and a former senior official at the International Institute of Finance and the International Monetary Fund.

At the intersection of economics, finance, and foreign policy, the GeoEconomics Center is a translation hub with the goal of helping shape a better global economic future.

Learn more

The post Has the G20 become the G19? appeared first on Atlantic Council.

The Intergovernmental Panel on Climate Change (IPCC) Sixth Assessment Report paints a dire picture of the possibility of avoiding the 1.5 degrees Celsius (°C) rise in global surface temperature. According to this report, “global warming is more likely than not to reach 1.5°C even under the very low [greenhouse gas] emission scenario” and it will be “harder to limit warming below 2°C.” The report provides strong evidence that, based on the current trends of greenhouse gas (GHG) emissions around the world, 1.5°C will be reached before 2040, which is a bit more optimistic than a 2023 article published in the journal Nature, which estimated the world will reach 1.5°C by 2029, leaving the global community with a mere five-year runway. Yet, a recent report by the European Commission warns that we already passed the 1.5°C-mark in 2024. The IPCC report also highlights the fact that there is a massive shortfall in the level of financial flows needed to achieve climate targets in different countries and sectors.

The link between social and physical infrastructure and economic growth and stability is un-disputable. However, the scale of financing required to meet the Sustainable Development Goals (SDGs) and establish climate-resilient infrastructure for the future global economy is the subject of widespread estimation and debate. These projections differ significantly based on various factors, such as the target year (2030, 2040, or 2050), the specific areas of focus (whether traditional infrastructure, SDG priorities, or the energy transition), and the underlying assumptions shaping the analyses. Despite these variations, one undeniable truth emerges: the financing gap is projected to reach trillions of dollars annually over the next ten to thirty years. This gap has been growing wider with the rising population (and, hence, growing needs for new infrastructure and maintaining the existing ones) and the increasing frequency of severe climate, destroying current critical infrastructure in many countries and negatively impacting their operations in others. Hence, the world not only needs to bridge the financing gap for building and maintaining basic infrastructure—between 1–4 billion people lack dependable access to electricity, water, internet, and sanitation—but old infrastructure must be climate proofed and new infrastructure must be built with climate resiliency in mind. Without bridging this massive and growing SDG and infrastructure financing gap, global growth will come to an eventual halt in just a few decades. 

This presents the global economy with the enormous challenge of funding its sustainable development and infrastructure needs. Given the magnitude of these gaps, it is evident that states, multilateral development banks (MDBs), and international financial institutions (IFIs) alone cannot bridge them. Therefore, there is an urgent need for innovative alternative financing solutions, namely from private sources. 

This report aims to provide a nuanced analysis on this very topic. Section 2 provides a holistic review of the investment gaps in global infrastructure, energy transition, and achieving SDGs. Section 3 highlights several challenges as they relate to de-risking, leveraging ratios, and potential sources of financing. Section 4 presents the case for making infrastructure an asset class that would attract private investment. Section 5 concludes the report. 

Amin Mohseni-Cheraghlou is a Senior Lecturer at American University and a former Senior Advisor at IMF’s Office of Executive Directors.

Nisha Narayanan is a senior fellow at the Atlantic Council’s GeoEconomics Center and is the head of country risk at a global financial institution.

Hung Tran is a nonresident senior fellow with the Atlantic Council’s GeoEconomics Center and and senior fellow at the Policy Center for the New South.

At the intersection of economics, finance, and foreign policy, the GeoEconomics Center is a translation hub with the goal of helping shape a better global economic future.

Learn more

The post Financing the future: Unlocking private capital for global infrastructure and climate goals appeared first on Atlantic Council.

The limitations of the Group of Twenty (G20) “Common Framework” have been extensively discussed and actionable solutions have been put forward. Tackling those limitations of the Common Framework is crucial for countries currently in debt distress, which experienced “significant delays” in the obtention of debt relief. As stressed by Kristalina Georgieva, managing director of the International Monetary Fund, “The framework can and must deliver more quickly.”

What’s hampering progress? Coordination issues, for one thing, but numerous voices also point to China’s role in hindering progress toward resolving the global debt crisis. The People’s Republic of China—a member of the IMF—has not only lent significant sums to borrower nations but also has the capacity to slow down processes because of the preferential terms in its lending agreements.

Overall, 147 countries—representing two-thirds of the global population and 40 percent of the world’s gross domestic product (GDP)—have either benefited from China’s Belt and Road Initiative (BRI) projects or shown interest in joining the program. By 2023, Chinese investment had begun to rebound since China’s zero-COVID policies, but China’s resistance to debt relief for its low-income borrowers will fuel sovereign defaults for years to come. China has spent an estimated $1 trillion through the BRI, thereby considerably strengthening its influence across Asia, Africa, and Latin America. Laos, for instance, owes almost half of its external debt (65 percent of its GDP) and is struggling to repay the debt that financed infrastructure like the high-speed Laos-China railway. China’s ownership of around 17.6 percent of Zambia’s external debt also slowed down Zambia’s debt restructuring negotiations significantly, contributing to a lengthy negotiation of two and a half years.

This piece outlines how China’s lending practices harm low-income borrowers and hinder debt restructuring negotiations through the use of debt clauses giving it de facto seniority. It further outlines ways for the Bretton Woods institutions to collaborate to change these dynamics and improve financing prospects of borrower countries and a more level field for lenders.

Lili Vessereau is a Research Scholar, Teaching Fellow and Fulbright Scholar at Harvard University, where she focuses on sovereign debt and macroeconomic impact of climate change.

At the intersection of economics, finance, and foreign policy, the GeoEconomics Center is a translation hub with the goal of helping shape a better global economic future.

Learn more

Issue Brief Oct 9, 2023

How the IMF can navigate great power rivalry

By Hung Tran

Fragmentation resulting from geopolitical competition between large economies is posing a serious challenge to the fulfillment of IMF’s core missions. Here’s how it can respond.

China Economy & Business

Issue Brief Apr 16, 2024

Geoeconomic fragmentation and net-zero targets

By Shirin Hakim and Amin Mohseni-Cheraghlou

This report outlines how the Bretton Woods Institutions can mitigate the effects of growing geoeconomic fragmentation on global net-zero targets.

China Climate Change & Climate Action

The post Toward equitable debt contracts: Preventing de facto seniority-clause escalation in the sovereign lending space appeared first on Atlantic Council.

The global economy and international financial system have evolved dramatically since the founding of the Bretton Woods system in 1944. A trend toward greater trade openness defined the decades following the establishment of the system. And while the Bretton Woods arrangement of fixed exchange rates was abandoned in 1973, this new international economic order continued to facilitate global economic integration and financial liberalization. Yet the trend of ever-more globalization, which has largely defined the past fifty years, appears to have stalled. Trade openness has remained effectively flat since the global financial crisis (GFC) (figure 1a), while cross-border assets have trended down or sideways since the COVID-19 pandemic and Russia’s 2022 invasion of Ukraine (figure 1b).

By fostering financial stability and supporting economic growth, the International Monetary Fund (IMF) provided a stable foundation which supported this trend of increased cross-border trade and investment. The IMF, through its surveillance and lending operations, was established to act as an impartial referee to ensure that member countries pursued sound economic and financial policies. It also expanded the global financial safety net (GFSN) – which acts as an insurance mechanism to provide liquidity to countries facing economic crises. The IMF, as the lender of last resort to the global economy, acted as the primary provider of crisis support up until the GFC.

This postwar system, of which the IMF was a core component, supported decades of economic prosperity, broad-based increases in living standards, and a marked decline in global poverty rates. However, the global economy had no shortage of crises in the intervening years. Experiences ranging from the Latin American debt crisis to the Asian financial crisis have incrementally eroded the IMF’s credibility and led member countries to seek alternative insurance mechanisms that do not come with “strings attached” (e.g., IMF program conditionality), thereby reducing member countries’ reliance on the IMF.

The onset of the GFC led countries to double down on self-insurance mechanisms. It also led to a substantial diversification of the GFSN, as bilateral swap lines (BSL) and regional financing arrangements (RFA) overtook the size of IMF resources in the safety net. To safeguard economic stability and protect against external shocks in the wake of the GFC, country authorities enacted capital controls, referred to as capital flow management measures (CFMs) in IMF parlance, in addition to accumulating foreign exchange reserves. This use of CFMs and international reserves as a self-insurance mechanism was further amplified by the COVID-19 pandemic and its associated financial distress. 

Now, following the economic and financial disruptions stemming from Russia’s invasion of Ukraine and rising geopolitical tensions, countries are increasingly utilizing industrial policies and current account restrictions to direct and manage trade flows as well – a trend that is best illustrated by the broad threat (and imposition) of tariffs that President Trump has made during the first month of his second term. These restrictions on capital and trade flows have contributed to the stalling of global integration and will likely result in greater volatility across the global economy in the coming years. Moreover, the displacement of the IMF as the anchor of the GFSN calls into question whether the GFSN can and will provide equitable support to all countries facing economic crises. As the global economy and international financial system enter a new era—characterized by increasing fragmentation rather than integration—ensuring that the international system has an effective insurance mechanism is more important than ever. 

This report is organized as follows. In Section II, I document the rise in fragmentation across capital and trade flows. Section III discusses how the emergence of these fragmentary forces has coincided with changes in the size and composition of the GFSN. Section IV explores how these forces of fragmentation could affect global development prospects and financial stability at the country- and system-level. Section V concludes with policy recommendations to revitalize the IMF and preserve the core insurance mechanism which underpins global development and financial stability. 

Patrick Ryan is a Bretton Woods 2.0 Fellow with the Atlantic Council’s GeoEconomics Center.

At the intersection of economics, finance, and foreign policy, the GeoEconomics Center is a translation hub with the goal of helping shape a better global economic future.

Learn more

Issue Brief Oct 9, 2023

How the IMF can navigate great power rivalry

By Hung Tran

Fragmentation resulting from geopolitical competition between large economies is posing a serious challenge to the fulfillment of IMF’s core missions. Here’s how it can respond.

China Economy & Business

Issue Brief Apr 16, 2024

Geoeconomic fragmentation and net-zero targets

By Shirin Hakim and Amin Mohseni-Cheraghlou

This report outlines how the Bretton Woods Institutions can mitigate the effects of growing geoeconomic fragmentation on global net-zero targets.

China Climate Change & Climate Action

The post Fragmentation and the role of the IMF appeared first on Atlantic Council.

Introduction

Mr. Chairman, Ranking Member Waters, and Members of the Committee, thank you for inviting me as a witness to today’s hearing.

My name is Martin Mühleisen. Before joining the Atlantic Council’s GeoEconomics Center as a Nonresident Senior Fellow, I retired from the International Monetary Fund (IMF) in 2021. I was Chief of Staff under Managing Director Christine Lagarde, and I served as Director for Strategy, Policy and Review between 2017 and 2020. The following are my personal views, not those of the Atlantic Council.

Multilateral financial institutions

International Financial Institutions (IFIs), such as the IMF, the World Bank, and regional Multilateral Development Banks (MDBs), have been important tools for the United States to exert its global leadership. Unlike the United Nations with its “one country, one vote” system, these institutions are shareholder-owned, and voting power is determined by shareholdings. The United States, in almost every circumstance, owns the largest share and, especially in the case of the IMF and World Bank, is the only country that holds a veto over changes to the institutions’ fundamental governance arrangements and lending capacity.

The institutions are chartered for specific, narrow purposes. The World Bank and MDBs borrow in global capital markets to finance economic development in emerging and developing countries. The IMF’s mandate, financed by issuing reserve assets to its member countries, is to preserve global economic stability by addressing external imbalances and serving as a lender of last resort to prevent balance of payments crises.

China’s role in the IFIs

The People’s Republic of China assumed China’s seat at the IMF and World Bank in 1980, and it joined other MDBs over the course of the following decades. It has broadly supported the mandates of these institutions and, like many other shareholders, contributed supplementary resources to help fund training, technical assistance, or interest rate subsidies for the poorest countries.

As China’s economy has grown to rival that of the United States, its voting share in the IMF and World Bank has not risen accordingly. Relative to its size, China is now significantly underrepresented in these institutions, along with a number of other emerging markets. This has been the subject of intense debates about IFI governance arrangements in recent years. Nevertheless, China joined a broad consensus last year to increase the IMF’s capital ( “quotas”) without any realignment of voting shares.

China As a Sovereign Lender

As it grew in size, China has also become the largest sovereign lender to emerging and developing countries over the past two decades, spurred on by President Xi’s Belt-Road Initiative (BRI) that started in 2013. China’s lending volume since 2000 is estimated at $1.3 trillion, approaching the total amount provided by the G7 over the same period.More recently, the People’s Bank of China has also acted as a lender of last resort, offering about $600 billion worth of bilateral renminbi swap lines to some 30 countries.

China did not grown its loan portfolio out of altruistic motives. It has used its creditor relationships with emerging markets and developing countries to export construction and other services; to obtain access to natural resources, ports, and other facilities; and to attract diplomatic support for its geopolitical objectives. For example, about 70 countries, many of them in the Western Hemisphere, have officially endorsed China’s sovereignty over Taiwan.

What This Committee Could Encourage

Hold China responsible for bad lending decisions

As a large and relatively new international lender, China has repeated many of the mistakes of other countries that went before it, including in the design of its lending programs and in the way that it manages relations with distressed borrowers.

BRI loans and the associated projects have been plagued by quality problems, lack of transparency, and quasi-commercial financial terms. Many loans have become distressed as a result, contributing to rising debt vulnerabilities in low-income countries. In a number of cases, this has put an effective stop to lending by multilateral lenders, who cannot lend to countries with an unsustainable debt burden.

A number of borrowers have remained in limbo for several years because China refused to participate in collective debt restructuring exercises, preferring instead to bilaterally extend maturities or modify interest rates rather than providing comprehensive debt relief.

Since China has joined the G20 Common Framework for Debt Restructuring in 2020, the speed of debt workouts has picked up somewhat. Nevertheless, there is still a lack of coordination among China’s state lenders, and there is a fundamental unwillingness to agree to loan write-downs that are sometimes necessary to restore countries’ solvency (not unlike under Chapter 11 of the US Bankruptcy Code), resulting in long workout periods that put an undue burden on debtor countries and other lenders.

The United States should use its voice in the IMF to adopt a more forward-leaning approach when it comes to the restructuring of Chinese loans. Besides insisting on improved transparency, the US Treasury should encourage the IMF to adopt a more forceful approach in cases where China’s reluctance to engage in meaningful restructuring effectively grants it a hold over IMF program loans.

For example, the IMF’s “Lending into Official Arrears“ (LIOA) policy allows the institution to resume lending to borrower countries that are in default to one of its members, provided they engage in good faith negotiations and other loan conditions are met. At the moment, the burden on countries to benefit from this policy is relatively high, given the risks for them to default on one of their largest lenders and trading partners. A more robust application of the LIOA policy, however, could strengthen the negotiation position of debtor countries and provide for more ambitious debt relief from China.

Focus on quality, not quantity, of IFI programs

Following the Covid epidemic, and in order to help countries respond to global climate, food, and energy crises in recent years, the World Bank and MDBs have been looking to leverage their capital base to step up climate and development loans, including with private capital, and the IMF issued $650 billion of Special Drawing Rights (SDRs) to its membership in 2021 to boost global liquidity. At the same time, the fund has channeled some of the newly created SDRs of its richer members into its concessional loan programs.

These efforts were intended to meet emergency financing needs of poorer countries, often involving little or relatively weak conditionality. There is a risk, however, that an increase in debt owed to multilateral institutions, who enjoy preferred creditor status, could worsen the overall debt situation of recipient countries as it may drive away private creditors. Moreover, the increase in global interest rates from the zero rate-environment a few years ago also implies that programs and projects need to meet a higher standard to help countries escape from debt distress.

To attract private capital and decrease their reliance on Chinese lenders, recipient countries need to improve their long-term growth prospects, which should be reinforced through strong loan conditionality focused on improving legal systems, streamlining regulations, and limiting government involvement in the economy, among others.

At the IMF, the United States should insist on prioritizing “upper-credit tranche” (UCT) programs, where a country must undertake necessary economic reforms to qualify for disbursements. At the World Bank, this could involve some rebalancing of its focus on global public goods toward more ambitious growth objectives.

Given the still strong demographics in Africa and Southeast Asia, investing in these regions will open up market opportunities for US exporters in the future. However, stepped-up lending by multilateral organizations alone will not be enough to win the struggle for hearts and minds in the Global South.

The United States and other large shareholders should therefore work with multilateral lenders to incentivize critical reforms and boost growth prospects in partner countries. If multilateral programs were flanked by bilateral co-financing, investment finance, specific trade preferences, or other forms of (geopolitical) incentives, they would have a larger chance to succeed.

Protect the dominant role of the dollar

I have so far focused mostly on low income and developing economies, in part because large emerging market (EM) countries exhibited a remarkable degree of macroeconomic stability in recent years. Many EMs tightened monetary policy early in 2021 in the face of inflationary pressures, and they were able to relax policies quickly after the shock receded.

In most cases, there was no need for full-fledged IMF/World Bank programs during this period, as there has not been for several years, although some countries in the Western Hemisphere made good use of the precautionary credit lines offered to IMF member countries with high-quality policies and a strong economic track record.

Two factors contributed to this positive outcome. First, many EMs acquired large foreign exchange reserves in the wake of the Asia and Global Financial Crises, making them more immune to speculative attacks; and second, countries pursued orthodox macroeconomic policies, with a focus on strong institutions, responsible fiscal policy, and flexible exchange rate management.

In principle, however, many EMs are still vulnerable to external shocks, especially under a combination of financial market volatility and rising tariffs and trade barriers. Most are not benefiting from dollar swap lines offered by the Federal Reserve, nor are they members of powerful regional currency arrangements (in South-East Asia, the Chiang Mai Initiative (CMIM) provides for some regional support, but this is largely tied to IMF programs). In case of a severe crisis, these countries would need access to US dollar sources to supplement their own reserves in order to avoid sharp currency devaluations.

In this case, the IMF could deploy its lending capacity of around $1 trillion to stabilize countries’ balance of payments, avoid wider contagion, and thereby preserve global financial stability. These funds are available through IMF programs or precautionary lines at relatively short notice, leveraging the United States’ financial contribution to the IMF by a factor of more than 5:1.

Absent the safety net provided by multilateral institutions, countries would only have two viable alternative to protect themselves against larger shocks. They would either have to acquire additional foreign exchange reserves, putting upward pressure on the US dollar, or they would need to seek help from China with its large currency reserves, which could in the long run be a factor in undermining the dominant role of the US dollar.

It would therefore be in the US interest if Congress were to ratify the IMF quota increase agreed last year, shifting a good part of the funds already contributed to the IMF’s New Arrangements to Borrow fully into its permanent capital.

A final word

When talking about the multilateral institutions, the focus usually lies on their finances and program activities. What is often overlooked is that these institutions are at the center of a worldwide network of country officials, financial market participants, and policy experts who are committed to market-based economics, global trade, free capital flows and responsible macroeconomic policies.

It is therefore no accident that emerging markets have become more stable in recent years. While this is an achievement on the part of each individual country, in many cases it has been spearheaded by officials that spent some years during their career working at multilateral institutions and/or continuing to benefit from close interaction with them. The transmission of knowledge through these contacts, as well as the large amount of technical assistance and training provided by multilateral institutions, are a public good that benefits the United States in many ways, and is unlike anything that China has to offer.

Fellow

Martin Mühleisen

Nonresident Senior Fellow

GeoEconomics Center

Digital Currencies Economy & Business

At the intersection of economics, finance, and foreign policy, the GeoEconomics Center is a translation hub with the goal of helping shape a better global economic future.

Learn more

The post Martin Mühleisen testifies to House Committee on Financial Services on the role of multilateral financial institutions in competition with China appeared first on Atlantic Council.

The post Bhusari interviewed by NDTV on US-India trade relations appeared first on Atlantic Council.

The post Event with Fed Governor Waller featured in Investing.com on how stablecoins can boost US dollar reserve status appeared first on Atlantic Council.

Click to jump to an expert analysis:

Josh Lipsky: Trump just put the world on notice

Dan Mullaney: This could be a game-changer for how the US imposes tariffs

Barbara Matthews: Reciprocal tariffs will hit Europe the hardest

Mark Linscott: India could be the first test case for negotiations under this plan

Trump just put the world on notice

Today’s action is not mere negotiating posture—this is the Trump administration putting nearly every country on notice. If you wanted to do widespread reciprocal tariffs across the world, you would ask the Office of the US Trade Representative and the Department of Commerce to come up with a list of recommendations and you would invoke all legal authorities at your disposal, including the International Emergency Economic Powers Act, to justify the action on national security grounds. That’s exactly what they’ve done today. 

So none of this should be dismissed as merely another Trump “wait and see” announcement. Will every country that tariffs the United States face reciprocal tariffs in April? No—several will find ways to delay, exempt, or negotiate. For example, it will be worth watching what Indian Prime Minister Narendra Modi brings to the table today as he visits the White House. But my bet is that many countries will not be so fortunate. Instead, they will face real and meaningful tariffs this spring, just as the world’s finance ministers gather in Washington for the International Monetary Fund-World Bank spring meetings. It’s the first time many of them will meet the Trump team, including Treasury Secretary Scott Bessent, and it is going to make for a very fraught first meeting. 

—Josh Lipsky is the senior director of the Atlantic Council’s GeoEconomics Center and a former adviser to the International Monetary Fund.

This could be a game-changer for how the US imposes tariffs

Depending on exactly how it is implemented, the “Fair and Reciprocal Plan” could be a game-changer in terms of how the United States imposes general tariffs. Under the current most-favored-nation approach under the World Trade Organization (WTO), members have negotiated tariff rates among more than 160 countries that they apply without discrimination to other WTO members. This plan could mark a change to an approach where general tariffs are imposed and negotiated country by country on a bilateral reciprocal basis. It appears to upend how tariffs have been negotiated and imposed since the General Agreement on Tariffs and Trade came into existence. The most-favored-nation approach was designed to encourage a reduction in global tariffs; it’s fair to conclude that that has not happened since the initial negotiations, so some frustration is perhaps understandable. In some cases, the reduction in tariffs triggered other non-tariff barriers to trade, so the desire to calculate tariff equivalents of those barriers is perhaps also understandable.

The prospect of reciprocal tariffs can also be viewed as the ultimate bargaining tool, essentially saying: “Lower your tariffs to our current levels (and eliminate other barriers that may be identified and turned into tariff equivalents) and face no consequences.” The larger problem for WTO-focused members is that any reductions in tariffs would have to apply to all WTO members. So the European Union (EU) might be happy to lower its 10 percent tariff on autos to the United States’ 2.5 percent rate, given that the United States poses no threat to the EU’s auto business. But that rate would also apply to South Korea, Japan, and China, which do pose a real threat. 

—L. Daniel Mullaney is a nonresident senior fellow with the Atlantic Council’s Europe Center and GeoEconomics Center. He previously served as assistant US trade representative for Europe and the Middle East.

Reciprocal tariffs will hit Europe the hardest

European economies will be the most adversely impacted by the reciprocal tariff action. Within twenty-four hours, the Trump administration has articulated a broad-based pivot away from Europe, both with respect to NATO and with respect to trade. The US government has made clear its intention to revive the pre-World War II, pre-Bretton Woods trade paradigm, in which tariff policies are set reciprocally, without multilateral engagement. 

The global consequences will extend well past economics and trade. The great success of the EU project is that Europe is no longer a junior partner to the United States on the global stage. The great question for 2025 is whether European and US leaders can find a way to redefine their special, strategic relationship for mutual benefit. The great risk for 2025 is that, instead, European and US strategic interests diverge over trade, climate, and other policy priorities.

Divergence is not impossible. The transatlantic trade relationship is uneven. Imbalances do exist, particularly as Europeans impose higher import tariffs on US goods than the United States does on imports from Europe. Imbalances will grow once the EU’s Carbon Border Adjustment Mechanism is fully implemented and once Europe achieves its strategic goal of eliminating reliance on liquefied natural gas imports. The United States may view these imbalances as creating a bargaining opportunity to redefine the transatlantic relationship, particularly given the great power competition underway with China alongside Russia’s war against Ukraine.

Ironically, the good news is that the bilateral transatlantic trade relationship is not governed by a free trade agreement, so no treaties are being abrogated by the tariff action with respect to the EU. This leaves room for strategic engagement on both sides. Nevertheless, the economic impact in Europe may be considerable. Europe’s economies face considerable challenges: lackluster growth, increasing energy transition costs, and economic difficulties resulting from the war in Ukraine. Disruption in the transatlantic supply chain will create additional pressures and tensions at a delicate moment for Europe. 

—Barbara C. Matthews is a nonresident senior fellow with the Atlantic Council. She is also CEO and founder of BCMstrategy, Inc and a former US Treasury attaché to the European Union.

India could be the first test case for negotiations under this plan

The president’s announcement today of a “Fair and Reciprocal Trade Plan” appears to be a blueprint for a monumental restructuring of the international trading system. It appears that it will initiate a process that could lead to new bespoke tariff schedules for some of the major trading partners of the United States, namely those that are viewed as the worst offenders in having high tariffs and running large trade surpluses with the United States.

That said, no new reciprocal tariffs will be imposed immediately, and the process, led by the Office of the US Trade Representative (USTR) and the Department of Commerce, could take some time to run its course before final decisions are made on raising tariffs. What is clear is that this process will involve a comprehensive examination of all forms of trade restrictions applied by select countries, including the European Union, India, and Brazil, which were specifically called out in the White House fact sheet. USTR and the Department of Commerce will have to assess differential tariffs, all forms of non-tariff barriers, and discriminatory tax regimes—and quantify them so that new tariffs can be calculated on a country-by-country and product-by-product basis. That will be a huge undertaking.

What is only hinted at in the presidential memorandum and fact sheet is the possibility of negotiating new trade agreements with these countries to reduce their tariffs and other trade barriers. In fact, with the announcement coming on the day of Prime Minister Narendra Modi’s visit to Washington, India could be the first test case for negotiations that might mitigate the imposition of new tariffs. So we should all buckle up for what will be a wild ride as this plan is put into place.

—Mark Linscott is a nonresident senior fellow with the Atlantic Council’s South Asia Center. He was the assistant US trade representative for South and Central Asian Affairs from 2016 to 2018, and assistant US trade representative for the WTO and Multilateral Affairs from 2012 to 2016.

The post Experts react: What does Trump’s reciprocal tariff announcement mean for global trade? appeared first on Atlantic Council.

The post Event with Federal Reserve Governor Waller featured by Bloomberg TV on the role of stablecoins in promoting the dollar’s global reserve status appeared first on Atlantic Council.

The post Event with Federal Reserve Governor Waller featured in American Banker on the Fed’s decision to not pursue wholesale CBDC development appeared first on Atlantic Council.

The post Event with Fed Governor Waller featured in Bloomberg Law on the role of stablecoins in promoting the dollar’s global reserve status appeared first on Atlantic Council.

The post Event on the future of payments with Federal Reserve Governor Christopher Waller featured in Politico’s Morning Money newsletter appeared first on Atlantic Council.

The post Event on the future of payments with Federal Reserve Governor Christopher Waller restreamed by Yahoo Finance appeared first on Atlantic Council.

The post Moehr and Tannebaum cited by Axios on how the use of economic statecraft tools can lead to economic fragmentation appeared first on Atlantic Council.

The post Lipsky quoted by Bloomberg on how China might respond to US tariffs appeared first on Atlantic Council.

The post Lipsky quoted in Fortune on how China could devalue the Yuan in response to US tariffs appeared first on Atlantic Council.

Click to jump to an expert analysis:

Josh Lipsky: Beijing is breathing a sigh of relief

Jason Marczak: Can there be a short-term end game for Mexico?

María Fernanda Bozmoski: The tariffs on Mexico are counterproductive to Trump’s goal of curbing immigration

Joseph Webster: These tariffs could upend energy sector business models

Barbara C. Matthews: This historic move means US trade treaties now come with a caveat

Maite Gonzalez Latorre: Canada’s next prime minister must articulate how the country will navigate the Trump presidency

L. Daniel Mullaney: The tariffs genie is out of the bottle

Beijing is breathing a sigh of relief

Two things are true at the same time. These tariffs are more sweeping than any trade action we saw in the first Trump term and will impact over one trillion dollars in goods. The president has invoked the International Emergency Economic Powers Act (IEEPA) in an unprecedented way, levying major trade barriers all at once against the United States’ three largest trading partners. But it’s also true that China is likely breathing a sigh of relief.

Policymakers in Beijing have to be wondering how it happened that the United States tariffed its allies at 25 percent and its greatest economic challenger at 10 percent. Of course, the 10 percent comes on top of the already existing tariffs in several sectors, but it still means that most goods from Mexico and Canada will face a steeper fine than those from China. It’s much tamer than Trump’s campaign threat of 60 percent. (In fact, despite that threat, we predicted a China scale-down right after the election.) 

Why the softening toward China? Inflation is one reason. Trump knows his moves on Canada and Mexico will have an impact, and there’s only so much price pressure US consumers are going to put up with. But leverage is another. Mexico and Canada depend far more on the United States than the United States depends on them. (Though there’s no doubt every economy in North America is going to bear some cost in these new trade wars.) China is a different story. China’s economy is less dependent on trade than Canada and Mexico—and only 15 percent of its exports go to the United States, compared to nearly 80 percent for Washington’s neighbors.

Now faced with 10 percent tariffs, Beijing has a trick up its sleeve: currency devaluation. Watch to see how the yuan moves this week. It’s likely that most of this increase can be absorbed through exchange rates—and that’s one reason why Beijing’s rhetoric will be sharp but its economic retaliation will potentially be more muted.

—Josh Lipsky is the senior director of the Atlantic Council’s GeoEconomics Center and a former adviser to the International Monetary Fund.

Can there be a short-term end game for Mexico?

Mexican President Claudia Sheinbaum quickly responded to Trump’s announcement of 25 percent tariffs with an instruction for Economy Secretary Marcelo Ebrard to implement what she termed “Plan B” to include retaliatory tariff and non-tariff measures. If Mexico uses a similar playbook as to when Trump threatened tariffs in 2019, retaliatory tariffs will follow a red-state strategy. This could include pork from Iowa, dairy from Wisconsin, and industrial goods, including vehicles and electronics, particularly from Michigan and Ohio—all states that voted for Trump in 2024. 

Sheinbaum has until Tuesday to see how to de-escalate and what carve-outs may be possible. Back in 2019, Trump threatened escalating tariffs that didn’t end up going into effect since Mexico committed to specific measures to curb immigration. What can Mexico agree to do this time around that would satisfy Trump? The fact sheet announcing the tariffs stated that the purpose is to “hold Mexico, Canada, and China accountable to their promises of halting illegal immigration and stopping poisonous fentanyl and other drugs from flowing into our country.” The Mexican authorities will be seeking to find some type of common understanding on new measures—like in 2019—that could be undertaken so the US president can claim a quick win.

Trump may be looking at the success of last Sunday’s tariff threats against Colombia—25 percent immediately with an escalation to 50 percent after one week—as proof that tariffs can deliver quick wins. Last week, Colombia acquiesced by the end of the day to Trump’s demands around acceptance of deportees. The Colombia tariff threats were the first test of this new administration as to whether governments would quickly capitulate. But Colombia is not Mexico or Canada.  

—Jason Marczak is vice president and senior director at the Atlantic Council’s Adrienne Arsht Latin America Center.

The tariffs on Mexico are counterproductive to Trump’s goal of curbing immigration

This evening’s announcement of 25 percent tariffs on Mexican imports—it is still unclear when they will take effect—is counterproductive to Trump’s goals of curbing immigration to the United States. The Trump administration has, oddly, made it cheaper for US manufacturers to source supplies from China than from Mexico. The tariffs will quickly erode the economic growth and improvements in supply-chain security that were direct results of the United States-Mexico-Canada Agreement (USMCA). China is stronger, and Mexico and the United States are weaker, because of this move. 

The implementation of these tariffs will weaken the Mexican peso and the country’s economy. Depending on how long the tariffs remain in place, Mexican exports could fall by over 10 percent, and its gross domestic product (GDP) contraction could reach up to 4 percent. However, it is clear from the White House statement that the logic behind these tariffs on Mexico is not economic; they are being used as a tool to force flashy results on the security front. The Trump administration has gone as far as accusing Mexico of colluding with drug trafficking organizations. This marks the first time in decades that US-Mexico economic collaboration has been so explicitly dependent on security concerns. Most importantly, the signals it sends to the United States’ top trading partner ahead of the revision of Trump’s signature trade agreement—the USMCA—are far from positive. Finally, the timing of this announcement could not be worse, as Secretary of State Marco Rubio embarks on a trip to Central America to build goodwill among allies in the same neighborhood. 

—María Fernanda Bozmoski is the director of impact and operations and lead for Central America at the Adrienne Arsht Latin America Center.

These tariffs could upend energy sector business models

Trump has issued an order imposing 25 percent additional tariffs on imports from Canada and Mexico and a 10 percent additional tariff on imports from China. According to the White House, “energy resources from Canada” will face a lower 10 percent tariff. If these tariffs are indeed implemented, the impact on energy markets will depend on the tariffs’ duration and the definition of “energy resource.”

Many US energy producers will never have imagined that supply chains in Mexico and especially Canada would ever face 25 percent tariffs. Consequently, some energy sector business models will break down if these tariffs are sustained.

It’s unclear which Canadian energy resources will qualify for the 10 percent tariff, though crude oil likely will. If the lower rate excludes imports of electricity, batteries, and minerals, this could significantly impact US electricity, battery, and defense technology markets. US capabilities in artificial intelligence and drones will be impacted, as well.

As David Goldwyn and I noted in our examination of USMCA energy trade, US refineries will now pay higher prices for Mexican and Canadian crude in the wake of tariffs. Texas refineries have historically taken in Mexican crude oil but will now be forced to pay higher input costs, harming their export competitiveness to other markets, especially Latin America. Midwestern refineries will also face higher prices, as they have few if any alternatives to Canadian crude oil and will pass along many costs to consumers. Finally, the US automotive sector could be severely impacted by these tariffs, due to deep supply chain interconnectedness with its North American neighbors. US development of autonomous vehicles will likely slow, perhaps considerably. The Midwest—especially Michigan—may be particularly squeezed by auto-related tariffs, as the mobility industry accounts for an estimated 27 percent of the Wolverine State’s gross state product.

—Joseph Webster is a senior fellow at the Atlantic Council’s Global Energy Center and Indo-Pacific Security Initiative; he also edits the independent China-Russia Report.

This historic move means US trade treaties now come with a caveat

Trump’s decision to impose tariffs on US trade treaty partners accelerates centrifugal forces that have been pulling at the global economy for over a decade.

The White House announced that the tariffs are being imposed under the president’s authority from IEEPA rather than through established trade treaties. This move is historic.

IEEPA provides the president with broad powers to address any “unusual or extraordinary threat, which has its source in whole or substantial part outside the United States.” Centering the tariff action on national security should make the move World Trade Organization-legal under the General Agreement on Tariffs and Trade’s Article XXI national security exception. If the Trump administration invokes the Article XXI national security exception, the United States and Ukraine will be the only nations ever to do so.

Trump has now asserted that the United States faces a dire national emergency as China exploits the free trade area created by the USMCA. The tariff policy implies that the United States’ closest trading partners are turning a blind eye to the fentanyl trade.

This is not, however, the first time that the United States has imposed tariffs to address non-trade vulnerabilities. President Richard Nixon invoked the Trading with the Enemy Act to impose across-the-board 10 percent tariffs after the United States left the gold standard in the early 1970s. His goal at the time was to avoid a balance of payments crisis. Nor would the United States be the only nation to use tariff policy to promote domestic policy priorities. The European Union is creating import levies based on their estimated embedded carbon emissions under the Carbon Border Adjustment Mechanism.

The harsh truth is that international economic interdependencies also create real vulnerabilities. The world has been adjusting to those vulnerabilities since the COVID-19 pandemic. Today’s tariff decision being premised on a national emergency shifts US trade policy past the trade paradigm. It signals that Washington no longer considers international trade to be either benign or always beneficial.

The United States’ trading partners have had time to prepare for this action. Geoeconomic alliances are already shifting. Canada’s prime minister has turned inward, encouraging domestic provinces and territories to decrease their own internal trading barriers to offset the disruption in trade flows with the United States. The European Union this month concluded a new trade agreement with Mexico. 

Today’s tariff decision tells the world that the United States’ trade treaty commitments come with a caveat: trading partners must support US policy priorities. The United States already exerts considerable economic influence through economic statecraft associated with US dollar sanctions policy. Tariff policy has now been enlisted into action as well.

—Barbara C. Matthews is a nonresident senior fellow with the Atlantic Council. She is also CEO and founder of BCMstrategy, Inc.

Canada’s next prime minister must articulate how the country will navigate the Trump presidency

As Canada navigates a race to determine who will lead the Liberal Party and become the next prime minister, the 25 percent Trump tariffs could potentially devastate Canada’s economy, shrinking its GDP by 2.6 percent (approximately 78 billion Canadian dollars), according to the Canadian Chamber of Commerce. While these tariffs would also harm the US economy, reducing its GDP by 1.6 percent (roughly $467 billion), Canada is more vulnerable due to its greater reliance on trade with the United States.

As the Liberal Party chooses its next leader, it is crucial for the party to present a strong, unified front to the public, despite internal challenges. More importantly, the candidates must articulate how Canada will navigate a Trump presidency, and fighting against these tariffs could provide an opportunity to achieve unity on this issue. Prime Minister Justin Trudeau said the country is readying a “forceful and immediate response,” which signals a strong, unified Canadian front.

Canada and the United States have long maintained a strong and vital economic and diplomatic relationship. The next Canadian government has the opportunity to assert itself and push back against unfavorable policies like the 25 percent tariff. This week, Rubio met with Canadian Foreign Affairs Minister Mélanie Joly in Washington to discuss collaboration on shared global challenges, including securing borders and ensuring energy security. With the United States emphasizing energy policy, Canada’s role as a key ally in this sector will become increasingly significant and could be a way to fight back against the tariffs.

—Maite Gonzalez Latorre is a program assistant at the Atlantic Council’s Adrienne Arsht Latin America Center.

The tariffs genie is out of the bottle

With this action, the United States has crossed a Rubicon. Previous tariffs have generally been in response to the injurious impact of some set of unfair trade practices, import surges, or balance of payments issues. Using the emergency power to impose tariffs in response to unrelated issues like drugs and immigration sets the stage for further tariffs in response to any number of other non-trade priorities. The genie is out of the bottle.  

—L. Daniel Mullaney is a nonresident senior fellow with the Atlantic Council’s Europe Center and GeoEconomics Center. He previously served as assistant US trade representative for Europe and the Middle East.

The post Experts react: Trump just slapped tariffs on Mexico, Canada, and China. What’s next? appeared first on Atlantic Council.

The post Lipsky quoted by Reuters on how China, Mexico, and Canada might retaliate against Trump’s tariff plans appeared first on Atlantic Council.

The post Dollar Dominance Monitor cited in Reuters on BRICS dedollarization efforts and Trump’s tariff threats appeared first on Atlantic Council.

The slow growth scenario is based on the assessment that the tariffs Trump is threatening would push inflation up from the annual 3 percent in December 2024. If that happened, the Federal Reserve would be cautious about any additional easing moves. Moreover, tariffs in Trump’s first Presidency have been shown to weaken growth as well. Promised tax cuts, including next year’s extension of the 2017 Tax Cuts and Job Act, would also keep the federal budget deficit high. The deficit is currently at 6 percent of gross domestic product (GDP), which is remarkably high for an economy near full employment, with an unemployment rate of only 4.1 percent. As a result, US national debt held by the public would continue to increase from the 100 percent of GDP it has already reached. All these factors have contributed to rising bond yields. For example, ten-year Treasury yields have risen by about one hundred basis points, up to 4.5 percent since their lows around 3.5 percent in September. Moreover, deportation of undocumented immigrants could reduce the growth of the labor force—88 percent of which has been due to net increases in immigrant workers in recent years. This would weaken GDP growth. Implicit in this scenario is that labor productivity, which has grown by 2.3 percent per year from 2023 to 2024, would revert back towards its 2010 to 2022 average rate of 1.5 percent.

By contrast, the strong growth scenario is built upon President Trump’s intention to significantly deregulate the economy. He also is keen to promote investment in artificial intelligence (AI) and crypto assets, to encourage the exploration and drilling of oil and gas, and to cut corporate taxes. These steps are expected to release the “animal spirits” fueling investment spending, corporate profit, and economic growth. Labor productivity would continue to increase, reverting to the long-term (1950 to 2009) average rate of 2.5 percent, making a higher trend growth rate of up to 3 percent a reasonable estimate. Belief in this possibility has helped keep equity markets resilient, with the S&P 500 index up by more than 3 percent in the past three months, despite rising bond yields.

One way to assess which of these two scenarios is more likely is to investigate the main drivers of the recent rise in bond yields. According to J.P. Morgan, the increase in ten-year US Treasury yields of around one hundred basis points can be explained by growth expectations and uncertainty, while monetary expectations have played a much smaller role.

J.P. Morgan’s interpretation of rising bond yields seems to be consistent with other market developments. For example, ten-year yields on Treasury Inflation Protected Securities, which reflect real yields, have increased by sixty-eight basis points since late October 2024, reaching 2.23 percent today. The term premium on ten-year Treasuries, compensating holders of long-term bonds for uncertainty—including uncertainty of the path of short-term interest rates over the lifetime of the bonds—has risen significantly over the past year to 1.24 percent. However, the spread between ten-year Treasury yields and interest rate swaps has remained stable, between eighty to eight-five basis points since July 2024. This spread indicates a current lack of investor concerns about budget deficits and substantial supply of new Treasuries. Moreover, inflation expectations as measured by the Federal Reserve Bank of New York’s Survey of Consumer Expectations are stable at 3 percent at the one-year horizon. They are mixed in the longer term, increasing from 2.6 percent to 3 percent at the three-year horizon and declining from 2.9 percent to 2.7 percent at the five-year horizon.

All told, market developments behind the rise in ten-year Treasury yields seem to indicate that the strong growth scenario is more likely—but then market sentiment can change on a dime! How sustainable is this prospect from today’s perspectives?

An indication is found in the 2026 growth forecasts—which tend to show a slowdown from the 2025 estimates. For example, the US Congressional Budget Office (CBO) expected 2.3 percent in 2025 and 1.9 percent in 2026. The Organization for Economic Co-operation and Development estimated 2.8 percent this year and 2.4 percent next year. Overall, the range of 2026 forecasts has narrowed down to 1.9 percent to 2.4 percent. This seems to reflect minimal expectations for further improvement in labor productivity growth. In fact, a reversal toward a lower average once observed in the decade before the Covid-19 pandemic is possible instead.

In a nutshell, while near-term growth prospects can be supported by releasing the “animal spirits,” it may not be sustainable longer term. One obvious problem is the unsustainability of the US fiscal trajectory. The CBO has estimated a federal budget deficit around 6 percent of GDP as far as the eye can see, boosting the national debt in public hands up from 100 percent of GDP to 118 percent in 2035—surpassing its previous high of 106 percent in 1946. The only factor that could help sustain this debt trajectory is enduring improvement in labor productivity. While uncertain at present, increased labor productivity is not implausible given the surge in technological advances, especially in AI.

Hung Tran is a nonresident senior fellow at the Atlantic Council’s Geoeconomics Center and senior fellow at the Policy Center for the New South; a former senior official at the Institute of International Finance and International Monetary Fund.

At the intersection of economics, finance, and foreign policy, the GeoEconomics Center is a translation hub with the goal of helping shape a better global economic future.

Learn more

The post US economic outlook 2025: It’s the productivity, stupid! appeared first on Atlantic Council.

The heads of state of more than fifty countries, as well as the CEOs of the world’s largest businesses, gathered at the annual World Economic Forum in Davos, Switzerland, and nearly everyone struck a note of optimism—and tried to send an olive branch to the new president. European Commission President Ursula von der Leyen outlined Europe’s competitiveness strategy and highlighted the number of US jobs created by European companies (approximately four million by her accounting). Chinese Vice Premier Ding Xuexiang said that China does not seek to run a trade surplus with the world (although no one asked him why, then, his country was running such a large one). BlackRock CEO Larry Fink said it’s possible there will be enormous growth in the United States (but warned about the risk of reigniting inflation). 

The message was clear—everyone wants to find a way to work with the United States. They have good reason: there is no alternative. The United States is one of the strongest advanced economies in the world, and Trump returns to office with economic tailwinds at his back. Look at how the United States stacks up to its peers. In 2016, when Trump was first elected, the United States comprised 50 percent of the Group of Seven’s (G7’s) gross domestic product (GDP). In comparison, today it makes up 60 percent. 

And it goes beyond the G7. China’s economy is significantly weaker than it was eight years ago. In 2017, China’s economy was growing at almost 7 percent. Today, our analysis with Rhodium Group indicates that China’s GDP growth is closer to 3 percent. Investors know the reality, and that’s why global capital continues to be drawn to the United States like a magnet. The S&P 500 closed at record highs this week—a stark contrast to the constant coffee chatter on the sidelines of the meetings about economic malaise in the eurozone. 

Trump, for his part, extended his own version of an olive branch. Tariffs were hardly featured in his inaugural address on Monday. In the days that followed, however, he did threaten Europe, Mexico, Canada, and China with tariffs—including by complaining how unfairly Europe treats the United States in his virtual speech on Thursday. But delegates took it in stride and privately said the fact that he didn’t come up with new tariffs on day one was a sign of moderation. Indeed, when Trump mentioned a 10 percent tariff on China, instead of the 60 percent campaign promise, he sent markets into a state of mini-jubilation.

But the good feelings weren’t only limited to Wall Street. Silicon Valley might have been the biggest winner of the week—both in DC and Davos.

During Monday’s inauguration, Trump was surrounded by several CEOs of the so-called “Magnificent Seven”—including Meta’s Mark Zuckerberg, Amazon’s Jeff Bezos, and Google’s Sundar Pichai. And it was those companies—and the artificial intelligence (AI) platforms they are pouring investment into—which dominated the debate in Davos. From the stage of the Congress Center to the storefronts on the promenade that these companies took over, AI was the talk of the town. On medical breakthroughs, the future of work, and the coming productivity surge, the financial optimism was dwarfed by techno-optimism. At the same time, however, the voices of concern could be heard as well, even if sotto voce. Some of the challenges discussed included issues of trust, energy usage, corporate concentration, legal guardrails, and whether this new technology would help the lives of those who need it the most.

And so, as the delegates decamp from the mountain, the question is whether this optimism can hold. While the economic signals are bullish, the geopolitical ones are anything but. Ukrainian President Volodymyr Zelenskyy called out European leaders directly in his speech, and he said that if Europe does not step up on defense, then it will become increasingly irrelevant. It was a stark reminder of the war that still raged less than a thousand miles to the east. To the north and west, political dysfunction in Germany and France loomed like a storm cloud rolling into the valley. And while leaders took heart in Trump’s mild step down on tariffs, everyone knows that nothing is certain. Nearly every business we spoke with privately said they are preparing for worst-case trade scenarios.

The last time Trump spoke at Davos was in January 2020. He predicted, as did nearly everyone else that week, that the virus that had started in Wuhan and was spreading in China would not be a major problem and was “totally under control.” It’s a reminder of just how quickly the world can change. 

Josh Lipsky is the senior director of the Atlantic Council’s GeoEconomics Center and a former adviser to the International Monetary Fund.

Ananya Kumar is the deputy director for future of money at the GeoEconomics Center.

Research and data visualizations provided by Jessie Yin.

The post Dispatch from Davos: The divide is shrinking between Davos and DC appeared first on Atlantic Council.

The post Event with Jan Hatzius featured in SCMP on Trump’s China tariff plans and impacts on the US economy appeared first on Atlantic Council.

Watch the full event

Public Event Thu, January 16, 2025 • 10:00 am ET

The future of economic statecraft with Daleep Singh

A conversation on the future of economic statecraft with Deputy National Security Advisor Daleep Singh

Economic Sanctions Economy & Business United States and Canada

Speaker

Daleep Singh
White House Deputy National Security Advisor for International Economics

Moderator

Kimberly Donovan
Director, Economic Statecraft Initiative, Atlantic Council

Introductory remarks and presentation

Josh Lipsky
Senior Director, GeoEconomics Center, Atlantic Council

Alisha Chhangani
Assistant Director, GeoEconomics Center, Atlantic Council

Mrugank Bhusari
Associate Director, GeoEconomics Center, Atlantic Council

Event transcript

Uncorrected transcript: Check against delivery

JOSH LIPSKY: Good morning, and welcome to the Atlantic Council.

I’m Josh Lipsky, senior director of the Atlantic Council’s GeoEconomics Center, and it is my honor to open today’s special event on the future of economic statecraft with White House Deputy National Security Advisor Daleep Singh.

Today is a special day for us here at the Council. It marks the four-year anniversary of the creation of the GeoEconomics Center and the three-year anniversary of the launch of the Economic Statecraft Initiative.

When we began this project in 2020 many people asked us what is geoeconomics and we explained that it is the fusion of national security, economics, and finance. We built a team and produced cutting-edge research on digital currencies, China’s economy, sanctions, the future of the Bretton Woods system, and more.

And then in 2022 Russia invaded Ukraine. The G7 responded to Putin by deploying the tools of statecraft in a unified and unprecedented way. Suddenly we did not need to explain what geoeconomics was anymore because the world was seeing it on full display every day. And here in the United States we were reminded that geoeconomics was not a new idea, but an old idea that the West had the luxury of forgetting in the post-Cold-War era.

But our guest today didn’t need any reminding. He is a geoeconomist at heart. His career in public service and the private sector is a model for the kind of multidisciplinary expertise that is required to confront today’s challenges. In the Obama administration, he served at the Treasury Department as acting assistant secretary for Financial Markets. During the outbreak of COVID-19, he was executive vice president and head of the markets group at the New York Fed. That’s not a position many people leave, by the way. But when President Biden asked him to become deputy national security advisor and deputy director of the National Economic Council, a role that also required him to become both G7 and G20 sherpa, Daleep did not hesitate.

Over the past four years he has served two tours in the White House and in between held senior roles in the private sector. And what a four years it has been. Daleep has been at the center of some of the most challenging international economic questions of our time. What happens when a G20 country’s sovereign reserves are blocked? How can supply chains built over decades be reshaped in a matter of months? How does the US confront the practices of a country like China without destabilizing the global economy?

He has helped answer these questions in a way that demonstrates a type of creative economic thinking that would make Keynes proud. He is not bound by what has happened before and can enable those around him—both within his own government and in allied governments around the world—to see solutions others have missed.

It is fitting, then, that after four years of hosting senior Biden administration officials for key speeches, from Brian Deese announcing the vision for US industrial policy to Secretary Yellen announcing the friend-shoring policy, our final guest of the Biden administration is Daleep Singh.

Following Daleep’s speech, my colleague, Kim Donovan, director of the Economic Statecraft Initiative, will interview Daleep, and then our team will—in true GeoEconomics Center fashion—launch all-new research on the status of the dollar as a global reserve currency.

But first, Daleep, the Atlantic Council floor is yours.

DALEEP SINGH: During this century, major powers have deployed economic sanctions and other restrictive tools of economic statecraft to an unprecedented degree. The number of sanctioned individuals and entities across the world has increased by an order of magnitude since 2000. Tariffs and other trade restrictions have tripled over the past five years. The percentage of OECD countries screening investments in sensitive sectors has risen over the past decade from less than a third to more than 80 percent, while the number of countries with sophisticated export controls has quadrupled since their inception during the Cold War.  

These trends are global, and while precise data are difficult to source in many jurisdictions, the growth of restrictive economic measures is accelerating both from the United States and our strategic rivals. China, despite having issued the lowest cumulative number of explicit sanctions among major economies, increased its designation activity by almost 100 percent last year—the highest rate of growth within this peer group—on top of its existing array of informal and extralegal barriers such as consumer boycotts, tourism restrictions, phytosanitary standards, and corporate pressure. Russia, for its part, now applies its own sanctions regime at scale and is routinely weaponizing its commodity exports—including nickel, tin, titanium, refined uranium, and, of course, oil and gas—to coerce trading partners and adversaries.

In my judgment, the trendlines are set to extend, for three main reasons.

First, sanctions and other restrictive measures are symptomatic of new and durable geopolitical realities. As Josh just mentioned, we’re no longer in the post-Cold War, unipolar order that underpinned the so-called “great moderation” of the global economy. Instead, we’ve returned to the “old normal” that prevailed for much of modern history, in which divergent forms of national governance and political ideology lead to intense geopolitical competition, less opportunity for cross-border cooperation, and greater risk of cross-border conflict. Since most of today’s “great powers” are also nuclear powers, barring catastrophic miscalculation, the logic of mutually assured destruction suggests that direct competition is likely to continue playing out mostly in the theaters of economics, energy, and technology, rather than in kinetic conflict on the battlefield. Set against this backdrop, the range of potential outcomes—the promise and peril for major powers to rise and fall—has widened, ushering in an era of more active use of economic tools to shape the course of events.

Second, these trends reflect opportunity. Though we’ve left the era of hyperglobalization, the world economy is still nearly as connected as ever—which provides scope for economic powers to break existing linkages, or threaten to do so, in exchange for geopolitical leverage. The ratio of global trade to global GDP has plateaued not far from the peak reached earlier this century. Worldwide foreign direct investment declined sharply after the pandemic but is rebounding and still exceeds the long-term historical average at well over a trillion dollars per year. Technological diffusion across borders remains largely unabated for all but the most sensitive items, in part because US restrictions on technology remain narrow and targeted.

Third, the succession of cross-border shocks this century—most prominently the COVID pandemic, but also financial crises, climate change, mass migration, and acute episodes of energy and food insecurity—have all punctuated the sense among policymakers that the singular pursuit of maximal efficiency and minimal cost will leave critical supply chains insufficiently resilient against a more volatile and uncertain global backdrop. Here in the United States, the Biden administration centered its geoeconomic strategy on making long overdue public investments at home and building partnerships abroad to strengthen and scale our productive capacity, but we also imposed targeted tariffs in strategic sectors to level the playing field against competitors playing by a different set of rules. Under the same rationale, many other leading economies have also implemented a similar mix of policies—including tariffs—to “de-risk” their supply chains from disruption and distortion.   

Indeed, there is a growing policy reflex across the world to navigate a more uncertain and turbulent world by applying a sanction, a tariff, an export control, or an investment restriction. As President Biden reminded us, however, these measures are never costless. In each instance, they weaken or sever economic bonds that took decades to build, with immediate and sometimes unintended costs for households and businesses. And though in our administration we’ve deployed restrictive measures in service of a higher geopolitical objective—not as an end to themselves—their repeated use can invite skepticism about American stewardship of the global economy.

To the extent that our use of restrictive tools is perceived as arbitrary or illegitimate, the incentive to “hedge” against perceived dependency on the United States will rise. China and Russia are making every effort to increase their and others’ capacity to do so in finance, technology, and other domains in which the United States has a dominant position.

Take, for instance, China’s longstanding effort to build a cross-border payment architecture without any nexus to the US financial system—and therefore outside the reach of US sanctions authorities. Several nonaligned G20 economies have already signed up for this platform, and while the volumes transacted are far from reaching a threshold of macroeconomic significance, they have already surpassed a threshold of geopolitical consequence, with a run rate large enough to intermediate a significant portion of Russia’s procurement of dual-use items from China that are finding their way to the battlefield in Ukraine.

In addition to strengthening the incentives to hedge against the sources of American economic power, the unconstrained use of restrictive economic statecraft also invites efforts by adversaries to deploy these same tools to target our own and our allies’ vulnerabilities.

This isn’t conjecture, but rather a description of reality. The PRC is by far the world’s largest supplier of manufactured goods, accounting for almost a third of global manufacturing in value-added terms—equivalent to the combined production capacity of the United States, India, Japan, Germany, and South Korea. From this position of strength, China has already weaponized its economic leverage in its attempts to coax geopolitical concessions from smaller trading partners such as Lithuania, Australia, Japan, and South Korea. It also has untapped potential to exploit chokepoints in a wide range of supply chains in which it has dominant market share and where the current productive capacity of the United States and our allies is limited for now, including medical equipment, ship-to-shore cranes, solar panels, EV batteries, pharmaceutical ingredients, lagging-edge semiconductors, and so on. Russia restricted its export of enriched uranium last November, creating the risk of disruption to our and allied nuclear power production, and for years has attempted to coerce Europe by modulating its supply of natural gas. Iran and its proxy forces have repeatedly exploited their control over the [Strait] of Hormuz and Red Sea shipping lanes to pressure the United States and its allies.

Against this backdrop, we have an urgent need to implement a set of principles that guide and constrain why, how, when, and to what extent we deploy restrictive economic tools. I believe this effort should have three overarching goals: first, to sustain the credibility and the potency of America’s economic statecraft toolkit for when we need it most; second, to prevent an escalatory tit-for-tat in the use of restrictive tools that could make the United States and the world worse off; and third, to update the rules of the international economic order we’ve worked to build and sustain for over seventy-plus years.

I suggest we seek to embed five principles in the practice of restrictive economic statecraft, first in our own conduct, and then among allies, nonaligned countries, and eventually our adversaries.

First, economic and financial sanctions should be used sparingly and in service of clearly defined and achievable geopolitical objectives.

Sanctions are a tool, and often a force multiplier, but never a standalone strategy. They should be designed and deployed in service of a geopolitical objective that policymakers outline prior to implementation and assess periodically afterward.

Prior to articulating the objective, policymakers would be well served to analyze and explain—at least internally—how they expect an economic measure to influence the decision-making calculus of the target, how they are expected to reinforce other levers of foreign policy—military, diplomatic, humanitarian—and the degree to which a multilateral coalition is necessary for their success.

These objectives could be pursued before an adverse “trigger” event occurs, either to deter a target’s malign behavior, degrade its capabilities, or both. Alternatively, or additionally, these measures can be imposed after a trigger event to impose costs, change the calculus of the target, or create leverage for an eventual diplomatic settlement.  

In every instance, the objective should be achievable. Efforts to engineer regime change through maximalist sanctions, for example, predictably fail to persuade the target, often an autocrat, that the benefits of sanctions relief outweigh the costs of giving up power—which is typically jail, or worse.  

Relatedly, the individuals or entities being sanctioned need to know why and for what behavior they are being penalized, so that the consequences of an action—whether it’s support for a terrorist organization, a serious human rights abuse, or the prosecution of an illegal war—are understood, such that the key actors can ultimately seek the reversal of these sanctions through a change in behavior.

Second, the force of restrictive actions should be responsibly calibrated to their expected impact, spillovers, and associated uncertainties.

As the leading economic and geopolitical force in the world, restrictive measures imposed by the United States are capable of imposing great and lasting harm, producing ripple effects that are impossible to identify fully in advance. The force of our restrictive actions must be calibrated in proportion to their expected impact, their spillover costs, and the uncertainties involved.

This requires the US government to continue building the analytical muscle to conduct rigorous, data-driven analyses on historical and imagined scenarios in which restrictive measures could be implemented—whether unilaterally or multilaterally, alone or in tandem with military and diplomatic levers, before or after a trigger event.

Assessments should highlight the degree to which the range of outcomes depends on the breadth of the implementing coalition, the target’s potential to mitigate the impact—for example, by substituting the good or service with domestic supply or import from third countries—and our own vulnerabilities and potential for risk mitigation in an extended and escalatory conflict.

Third, policymakers must consider explicitly and upfront the efficacy of restrictive measures on the decision-making calculus of the target.

The design of restrictive measures is typically prepared by those with expertise on how to impose costs on the macroeconomy and the financial system of the target while minimizing spillovers to the US and the global economy. While this is a vital and necessary contribution, the ultimate success of restrictive measures depends on how these costs are likely to influence the decisions of key actors in the target country or entity. It also depends on the extent to which these actors are influenced by their economic, political, social, and humanitarian impact on political elites and the civilian population of the target. Meeting the analytical test of sufficiency requires the upfront and explicit integration of economic analysis with political intelligence.

Fourth, restrictive measures should be maximally coordinated, both with domestic stakeholders and international partners.

Unity with partners multiplies the impact of restrictive measures—due to the higher impact it delivers on the target, the reduced opportunity for evasion, and the perceived legitimacy of the action. This last point on legitimacy is critical: It makes clear that our purpose is not the unilateral exercise of brute economic force, but rather the collective defense of shared principles that underpin peace and security around the world.

It’s also critical that restrictive measures are explained to the range of stakeholders that transmit the force of these measures to the real world—including private sector, the regulatory community, and central banks. Private sector actors, in particular, are often the “front lines” of implementing financial sanctions and export controls, and we depend on their cooperation and their sense of civic duty to spot and counter circumvention. In exchange, we owe them clarity and coordination.

Finally, restrictive measures must be flexible and adjust to unintended consequences, evolving economic and financial conditions, and the reaction of the target.  

Even after exhaustive analysis and careful design, restrictive measures are blunt tools that are typically implemented under conditions of high uncertainty—often with little or no precedent from which to make confident projections about their likely effects. 

It should surprise no one when the impact delivered, or spillovers caused, are materially different than expected. Humility requires us to admit when we’re mistaken in our judgments and to course correct as needed.

Separately, the context in which restrictive measures are applied inevitably evolves. The coalition that implements sanctions may grow or decline. Economic and financial conditions may change for the better or worse, both in the target country and within the implementing coalition. Political and power dynamics within the target may harden or soften, along with the behavior we seek to influence.

All of these are reasons why we must have timely and demonstrated pathways to ratchet higher or lower the scale and scope of restrictive measures, to adjust the channels through which we deliver impact, and to stand ready for mitigation of unanticipated risks or costs.

Under the leadership of President Biden and National Security Advisor Jake Sullivan, we’ve made important strides in putting these limiting principles into practice—not in a formalistic sense, but in real-time as events unfolded—and often in ways that have never been made public. Each of the principles I’ve just described animated the design and the execution of the sanctions program against Russia; the intuition of the oil “price cap” coalition; the logic of the “small yard and high fence” for our export controls and our investment restrictions; and the targeted nature of the tariffs we deployed against China in strategic sectors.

I’d like to close my remarks, and my time in government, with three recommendations on how to institutionalize these practices. Of course, it’s not going to be for me or us who are still in the Biden Administration to decide whether and how these get implemented, but I believe emphatically they would each serve to advance our shared bipartisan interests to safeguard America’s national security while enhancing our economic prosperity.

First, much as we restructured our national security apparatus amid rising tensions in the aftermath of the Second World War, this is a moment to evaluate whether the US government’s organizational design for conducting economic statecraft is fit for purpose. Too many of our tools and too many of our subject matter experts are spread across too many agencies without a unifying set of incentives, objectives, and metrics for strategic success. Japan pioneered the elevation of economic security to a cabinet level in 2021, and we would be wise to consider following suit in this new era of geoeconomic competition—particularly so that we could strike a deliberate balance between restrictive tools that impose economic pain and positive tools that offer the prospect of mutual economic gain.

Second, we have to continue to upgrade what I call the “analytical infrastructure” of economic statecraft—the personnel, the technology, the data, and connectivity to continually assess the efficacy, limitations, and tradeoffs of using our restrictive tools; to “stress test” and wargame their use against historical and simulated scenarios; to anticipate where and how evasion is likely to occur and build readiness for countermeasures that could be deployed in real time; to build surveillance capabilities that provide early warnings on developing economic security threats; and to maintain the capacity to execute at pace, even if multiple conflicts emerge at once. While these and other demands on the practitioners of economic statecraft have grown exponentially, their available resources have increased only at a linear rate, and often much less.

Finally, we should begin a series of conversations that aim to forge a common vision on the rules of engagement for why, when, how, and to what extent restrictive measures are used across the world. We should start with our allies and then seek to build consensus with nonaligned or multi-aligned countries. Ultimately, in the same spirit of the Geneva Conventions, we must include our adversaries in a good faith effort to avoid creating a fractured economic system that damages lives and livelihoods across the world and brings us closer to the hot conflicts that economic statecraft seeks to avoid. Thank you.

KIMBERLY DONOVAN: Great. Hi, Daleep. Thank you so much for joining us today, for your remarks and discussion about the future of economic statecraft. And thank you to all of you joining us in the audience. If you have questions for the deputy national security advisor, please go to AskAC.org.

So, Daleep, in your remarks you really reminded me of comments that former Treasury Secretary Jack Lew made back in 2016, where he warned of the risk of sanctions overuse and overreach, and even stated that we must be strategic and judicious in how we apply sanctions to challenges around the world. So, considering that we’re nearly ten years after Jack Lew made these remarks, and you offer a similar diagnosis and recommendations on how to address these issues, it’s just interesting to me that we continue to raise the alarm on the potential overuse and overreach of sanctions, in particular, yet we continue to increasingly use them. So I was wondering, I mean, why are policymakers continuing down this path, considering the risks at stake?

DALEEP SINGH: It’s a great question. I have, I mean, of course, unending respect and admiration for Jack Lew. He was spot on in 2016. His words have aged well. I would say the context has changed. All else isn’t equal. You know, the demand signal for sanctions and for restrictive economic statecraft, it’s just flashing in neon lights now. You know, and the supply of sanctions and economic statecraft, the bureaucratic capacity to do so and respond to the demand signal, it’s increased. So if you want to think about sanctions as having a clearing level, as any other market instrument would, the equilibrium level has risen. And I would say it’s probably going to stay high because it’s symptomatic of durable structural forces, all of which reinforce each other.

And I’ll just tick off a few. First, and most obviously, geopolitical competition has intensified. So, what does that mean for sanctions? Well, the risk of cross-border conflict is higher, the scope for cross-border cooperation is lower. And, you know, because today’s great powers are nuclear powers, barring catastrophic miscalculation, the logic of mutually assured destruction suggests the path of least resistance when conflict emerges is for that conflict to play out in the theater of economics more often than it does in terms of a kinetic conflict on the battlefield. And that’s one demand signal for sanctions.

But I would say, you know, just as we’re competing more intensely across countries, as we have in at least thirty years, many countries, including democracies, are also being pulled apart from within due to domestic political polarization. And that’s relevant to sanctions because it feeds—it feeds the geopolitical competition I just referenced. And it also makes it more likely that sanctions and restrictive statecraft get used. If there’s less weight in the political center, there’s probably, in my judgment, more willingness to subordinate positive-sum economic thinking for zero-sum geopolitical flexing.

And then think about technology. You know, the pace of change is dizzying. I mean, Jason Matheny uses the term, that I think a lot of policymakers think is about right, we’re all apocaloptimists now. You know, you could be wildly optimistic about technology, as long as it doesn’t make us extinct. But, you know, when you think about AI, or leading-edge semiconductors, or biotech, or quantum, each of these technologies has the potential to reorder the league tables of military preeminence. And so it’s not surprising that we’re seeing less technology diffusion across borders for commercial purposes and more controls to safeguard national security.

Take energy, another structural force. I hope all of us in the room still think it’s urgent and necessary that we make a transition from fossil fuels to clean energy. But it’s very unlikely the transition is orderly. Even under the most optimistic estimates, clean energy sources are not likely to fully substitute for fossil fuel energy in at least several decades. And meanwhile, the investments in fossil fuel production have plummeted. Well, that means we’re going to have periodic imbalances between energy supply and energy demand. And that creates opportunity for producers of energy to weaponize, whether it’s fossil fuels or clean energy supply, for geopolitical leverage.

And the last force I would just mention is—it’s not as much of a force—but the residue of the succession of shocks we’ve had this century, most obviously the pandemic but also Russia’s invasion of Ukraine. It’s left a psychological scar. And I would say it’s changed the psychological balance of risks for how policymakers and private sector leaders think about managing supply chains. So I think there’s a—there’s just a durable shift away from global supply chains that have a singular focus on efficiency and minimal costs. And they’re now going to be more geared around geopolitical alliances that have more regard for resilience.

I think those are the structural forces that are driving up the demand for sanctions. It’s not that the world hasn’t paid close attention to the words of Jack Lew, or what I’ve been saying. We’re just in a different environment. It’s even more reason why we have to lay down a set of principles and a rule—and a set of rules that avoid a global race to the bottom in the use of these tools.

KIMBERLY DONOVAN: I 100 percent agree. And I really appreciate the context for this. And actually wanted to pick up on your point of setting these principles, because I think that really is a very strong case for how we go forward with the use of economic statecraft tools. And you’ve laid out very sound recommendations that would ultimately, I think, strengthen our economic statecraft toolkit. And I was just wondering, from your experience, I mean, why have these concepts, at least appeared from the outside, to be difficult to really implement and enforce within the US government?

DALEEP SINGH: Yeah, I think about this a lot. I don’t know the answer. Let me give you four possibilities. One is policy is just—it’s all about tradeoffs. You know, when there’s a conflict that emerges, leaders want options. Often the least-worst option is to impose a sanction, or some related restrictive measure. And sanctions now fill the policy space between going to war—too risky, too costly—and merely issuing words of disapproval—you know, too meek, too soft. I think there’s also a time consistency issue. You know, the most profound costs of using restrictive economic statecraft are felt over the long term. The political economy benefits of doing something, you feel those immediately.

Third it’s—I mean, I kind of hinted at this before—it’s the path of least bureaucratic resistance, because when we implement sanctions or restrictive measures we use executive authority. It’s considered an extension of foreign policy under the Constitution. We get to decide. By contrast, if you use a positive tool of statecraft—you know, public investments, infrastructure finance, debt relief—those involve taxpayer dollars, and therefore Congress. It’s not surprising that there’s an imbalance between restrictive and affirmative tools.

And the last—I mean, the last factor that I would—I would pose for consideration is that this is a collective action problem. You know, if a major power decides unilaterally to constrain its use of restrictive measures according to a set of limiting principles but no other major powers do so, that country is putting itself at a strategic disadvantage. If you want to think about it in geoeconomic terms, you’re bringing—you’re bringing a plastic knife to a gunfight.

You know, so there is—there is a collective action problem. The only way to solve that problem is if a leading economic power like the United States decides to lead, and tries to coordinate and build trust towards something that can do an economic disarmament.

KIMBERLY DONOVAN: Thank you. And I’m really glad that you raised the affirmative economic statecraft tools because we’ve been doing a lot of research over the past couple years on what we’ve called positive economic statecraft—so the inducements such as development or investment tools that the US in particular can leverage to advance, you know, different foreign policy and national security objectives. Do you see positive economic statecraft tools, like, playing a significant role in the future of economic statecraft? And I mean, how do we kind of get around some of the challenges that you raised on, you know, executive versus legislative authorities?

DALEEP SINGH: Gosh, they have to. It would be one of the—one of the biggest strategic mistakes we’ve made in recent history not to place emphasis on building out the affirmative toolkit, because, again, let’s just step back. We’re in this intense geopolitical competition. Russia and China are both—they have both expressed and revealed a desire to disrupt the US-led order. We and our allies are pushing back. But there are a large number of non-aligned countries that are increasingly hedging their bets, right: India, Indonesia, Saudi, UAE, South Africa, Turkey, Brazil, Argentina, Mexico. It’s a long list, right? And our use of restrictive economic tools, they are necessary and they need to be principled, but they’re not going to win hearts and minds. You know, the far more potent tool if we want to attract countries into our strategic orbit is to use positive economic tools.

Now, why don’t we use them more often? I gave you one of the reasons. It’s bureaucratic friction. And you know, we—the Constitution requires us to consult with Congress, and there’s a lot of dysfunction in Congress and disagreement right now.

But also, I mean, there’s a—there’s a market failure. There is a problem of short termism in the private sector. If you think about projects that have—economic projects that have the greatest strategic value for the United States, whether it’s a technology moonshot like nuclear fusion or enhanced geothermal or post-quantum cryptography; or whether it’s s piece of critical infrastructure like ship-to-shore cranes or legacy semiconductor supply chains, resurrecting those, or just having a mining capability; a lot of these are sort of like hardware projects that require large upfront capital investment, they have long time horizons before they begin to recoup returns, they’re highly complex, they involve a lot of regulatory risk, and you know, a lot of early-stage private financiers say I can get superior risk-adjusted returns over a much shorter horizon by investing in software or apps. And so a lot of these projects—we can’t harness the power of the most innovative and dynamic financial system in the world for the projects that matter most to our national security.

So why don’t our public authorities fill the gap? Well, I mean, most of them aren’t really designed to be flexible, strategic investment authorities. The DFC—the Development Finance Corporation—is our flagship overseas investment vehicle, but it’s largely restricted against investing in countries that are upper middle income or high income. Well, 75 percent of the countries in Latin America and the Indo-Pacific are above that income threshold. Ex-Im and the Trade and Development Agency both are by mandate focused on promoting US exports, which is not the same thing as promoting US strategic objectives like technological preeminence or energy security or supply chain resilience. The Millennium Challenge Corporation and USAID have explicit development mandates; again, that’s not the same thing as what I’m talking about.

So we have a choice, either reimagine our existing institutions or develop new tools. I’m kind of agnostic as to what we do, but my bias would be that we should invent new tools. We should have a flexible, strategic investment authority that has the capacity to make investments where there’s a market failure, to invest at pace and scale in ways that allow us to compete. I think we should have much more frequent use of sovereign loan guarantees for middle-income countries so that we have a concessional lending instrument. I think we should consider having a strategic resilience reserve; kind of reimagine the Strategic Petroleum Reserve but focus on critical minerals and specialized technological inputs that we need, et cetera, et cetera.

But you know, we do have this unfortunate perception in much of the developing world that we show up with a long checklist of requirements before we invest and other countries have a blank checkbook. That’s a recipe for losing.

KIMBERLY DONOVAN: That’s an—you know, you raised this in your—China, specifically—in your remarks, and at least from my perspective, looking at the Belt and Road Initiative and where China is using its own economic statecraft rules to influence different countries. But I kind of wanted to switch gears a little bit where in your remarks you called out China from a cross-border payment project—

DALEEP SINGH: Yeah.

KIMBERLY DONOVAN:—and mBridge as one example of that. I mean, could you discuss, what has the US done in the past four years to kind of address advancements where China has made in a cross-border payment, and what should the US be doing going forward on that?

DALEEP SINGH: Oh gosh, ask me in one week. So mBridge—I mean, for everybody’s context, I mean, it’s the most advanced CBDC platform in the world. You know, it’s addressing a genuine market need. It’s faster, cheaper, less frustrating, if you want to move money across borders, than using the legacy dollar-based architecture. China, Hong Kong, Thailand, the UAE, Saudi have all joined the platform. Others are considering doing so. And it allows these countries, potentially others, to move money across borders to address the market need I referenced, but also potentially to sidestep any nexus with the US financial system.

Most worryingly—I mean, the BIS just pulled out of this project a few months ago, which means China now can exert tremendous leverage in setting the standards for this platform in terms of privacy, security, interoperability, and the enforcement of US sanctions.

So what should we do? We should compete. You know, we should innovate. We should build a better mousetrap or at least a prototype for a mousetrap that reflects our standards for privacy, for security, for interoperability, for illicit finance, counterterrorism, US sanctions enforcement, that leverages the most advanced technology, distributed-ledger technology, that brings in the major central banks of the world—Fed, ECB, BOJ, BOE—and that also creates a race to the top with privately issued dollar stablecoins. We can do all of those things, and we can bring in—Josh, you’ve written about this with Ananya—and we can get SWIFT into this conversation. This is the classic—this is the classic innovator’s dilemma. When you have an incumbent that’s been dominant for fifty years, it’s hard to reinvent yourself as more than just a messaging service, but it needs to become a messaging and a settlement service, just like SIPS, if we’re going to compete.

Now, this—all of these—all of these items, all of these lines of effort I’m mentioning were part of the implicit push of the digital assets executive order we announced in 2022, but the truth is—the truth is we’ve moved too slowly, too incrementally, and what we’ve done is utterly lacking in ambition.

KIMBERLY DONOVAN: That’s a great diagnosis—and hopefully—

DALEEP SINGH: That’s—

KIMBERLY DONOVAN: No, it’s very fair.

DALEEP SINGH: You know, truth-telling time.

KIMBERLY DONOVAN: Yes, absolutely.

If I can stick on China for a minute, I did go back and look at the Transatlantic Forum that we host every year—and you’ve been a huge part of this and we very much appreciate all of your support with it. So back in 2022 when we first launched the forum in Frankfurt, you did say that there was no country too big to sanction.

DALEEP SINGH: Yeah.

KIMBERLY DONOVAN: And now that—I know you’ve been in and out of government, but just—do you still feel that that’s the case?

DALEEP SINGH: Absolutely. But I mean, I—if I didn’t say it then, I should have—you’d better know what you’re getting into, right?

Because, you know, sanctioning Russia is not like sanctioning—sorry, sanctioning China is nothing like sanctioning Russia. It’s economy is ten times larger, the banking sector is thirty times larger, it’s got three trillion dollars of foreign reserves, multiples more than that in domestic savings. You know, it’s got all the chokepoints I mentioned in my speech, but it’s increasingly becoming a peer competitor in foundational technologies. It has enormous amounts of soft power with its development finance portfolio.

So this speaks to the need for the analytical muscle to simulate what does an escalatory tit-for-tat with China look like in a multiplayer, multistage contest that plays out over the course of years? And do we have the tools, do we have the defense mechanisms, do we have the kind of coalition that we would need to prevail? And you have to compare that path relative to other levers that you might deploy in a trigger scenario—military, diplomatic, et cetera.

I think you will come to the conclusion that there is no knockout blow that you can deliver without enormous spillover costs that may be unacceptable to Western democracies. And so we’d better try to avert that type of scenario as best we can.

KIMBERLY DONOVAN: That’s an—I really appreciated your points in your speech about the data-driven economic analysis that’s needed in this space, and I know at the GeoEconomics Center we work closely with Rhodium and try to do that on the—understanding the China front.

But, you know, I feel like some in our audience may actually be surprised to know that the US government doesn’t currently do a lot of this analytic work itself before it rolls out different sanctions packages and so I was wondering if you could talk with us a little bit of, like, why we haven’t as a US government really undertaken this type of in-depth economic impact assessments in the sanctions space which, you know, on the regulatory side is usually a huge requirement.

And then also if you could, you know, talk with us about, you know, how do we currently measure the impact and effectiveness of sanctions and identify where we need to kind of alter course.

DALEEP SINGH: Sure. I didn’t mean to suggest we don’t do this type of analysis at all.

KIMBERLY DONOVAN: I know. Yeah.

DALEEP SINGH: And I want to give kudos because the office of the chief economist at the State Department and the sanctions economic analysis unit at Treasury they’ve really ramped up and they’re doing fantastic work. It’s been instrumental for everything that we do.

But I just think we have got to strive to have the most sophisticated financial, economic, and political modeling on Earth. We have to. We can accept nothing less than having the ability to think about exactly what I just described.

If we’re in an escalatory tit for tat with a major economic power in which we and they are using sanctions, export controls, tariffs, investment restrictions, price caps, or some variation of price caps how does that play out over the course of time?

You know, if we apply pressure where our strengths intersect with the targets’ vulnerabilities and they do the same against us can we toggle that analysis, and, again, this should all be probabilistic, as I mentioned in my speech. Point estimates will be close to useless.

But we should have scenarios that think about how to toggle the estimates based on the size of our coalition, the size of the targets’ coalition, their ability to respond with monetary and fiscal responses, their existing buffers in terms of domestic production capacity. Can they import a product that we have controlled from third countries? Are we implementing sanctions by themselves or do we have other levers that we’re deploying at the same time? How do you attribute the relative weighting of those measures?

You know, that’s the kind of—and then we’ve got to imagine—we’ve got to also—beyond that analysis we’ve got to imagine scenarios that never happened before and what we’ll find, I think, from that type of infrastructure is we’ll recognize where we do need new tools, new defense mechanisms, new forms of coordination, if we’re going to prevail using economic statecraft in a variety of scenarios.

That we don’t have. We’re going to need more resources, we’re going to need more technology, we’ll need more expertise, and we don’t have a lot of time. So I do think this is urgent.

KIMBERLY DONOVAN: I agree, and it’s been really interesting just being in this space for so long where you look at the defense, you know, budget and, you know, trillions of dollars and then Treasury and Commerce. I mean, as you noted, like, their budgets have stayed pretty consistent in resource levels. So, hopefully, that’s an area for continued growth.

DALEEP SINGH: Yeah. I mean, we have—I mean, it would be the best bang for the buck that I can think of in our national security budget to upgrade the analytical infrastructure that exists at Treasury, Commerce, other departments, or just even third parties that can help us.

I can’t think of many other better uses. I mean, just to give you an idea, OFAC is still using IT systems that were built in the 1970s. You know this.

KIMBERLY DONOVAN: Yes.

DALEEP SINGH: That cannot continue to be the case.

KIMBERLY DONOVAN: Yeah. No, it’s—I a hundred percent agree with you.

So, like, while we’re still talking about sanctions I do want to highlight the fact that the Biden administration just ruled out very significant sanctions on Russia’s energy sector as well as different Venezuelan officials and in Sudan just over the past couple weeks and, you know, I wanted to get your thoughts on why are these sanctions so significant and why were they rolled out in the final weeks of the administration versus maybe earlier.

And do the sanctions that have been put in place, especially Russia oil sanctions and, like, the wind down with general licenses coming, do you think that these sanctions kind of follow the principles that you’ve laid out in your remarks on kind of recognizing the economic impact?

DALEEP SINGH: Yeah, I do. I mean, so why now?

I’ll start with Russia. The context changed. You know, for much of the—at the beginning of the war, the situation we faced was very different. Russia was the third-largest supplier of oil and gas to the world. Global energy supplies were very tight.

And so while we cut off our import of Russian energy imports within a couple of weeks after the invasion, and we soon thereafter surged to the tune of 180 million barrels from our SPR, our supply of oil to the world, the thought of—the idea of cutting off Russia’s exports to the rest of the world, that struck us as potentially self-defeating because it would likely have created a global shock to energy and food prices that would hurt millions of innocent people across the world, principally the most vulnerable members of society.

And even if the quantity of exports that Putin could sell to the world was reduced, the price spike could result in him benefiting the most in terms of energy export revenues, while at the same time inflating the cost of gas and energy at the pump. So we took a far more nuanced approach. We unveiled the price cap at the end of 2022 to try to limit the revenues that Putin could receive from exporting energy, while keeping the global supply of energy steady.

OK, so the situation is now very different. Most forecasters expect that global energy supply will comfortably exceed global energy demand over the next year. There’s plenty of spare capacity, both within OPEC+ and outside of OPEC+ if more production is needed. And, you know, the global inflation backdrop is also much improved. Here in the US, it’s down two-thirds from the peak. So we felt like the risk-reward of hitting Russia’s oil exports directly was much more favorable.

So the series of actions, not just what we announced last week, to really target every node of the production and distribution chain—two of the largest four oil producers, 183 vessels, dozens of oil service field—oil service providers, traders, a port that was receiving—knowingly receiving, sanctioned Russian energy—that, plus the designation of Gazprombank, and the removal of, you mentioned, General License 8, the energy exemption on our banking sector sanctions, all of those were done in the context of this changed reality.

And the geopolitical purpose, coming back to the principles, has always been the same. I mean, in the short term the way I’ve always thought about it is maximize the costs on Putin for prosecuting this war, subject to an acceptable amount of spillovers, to degrade over the medium term his capacity to exert influence and project power. And then, third, over the long run, create a demonstration effect for any other autocrat that wants to redraw borders by force. That’s still what we’re trying to do with these sanctions.

And if you want to make it really kind of short term, we’re trying to put Ukraine in the best possible position at the negotiating table, while at the same time increasing its staying power through other actions that we’ve taken to surge military assistance through the end of our term, but also to fulfill our commitment with the G7 to provide fifty billion dollars to Ukraine using the interest earned on frozen Russian reserves. In totality, that’s what we’re trying to do, is to change Putin’s calculus about the cost of continuing this war while giving Ukraine the best possible position to negotiate a just and lasting peace.

You mentioned a couple of other things that we did. I’ll just quickly—so with Venezuela, the actions that we announced were really an attempt to take a multilateral stand against the sham election. So the UK and the EU joined us in these measures. The EU had not done anything like this in a number of years. So it was—it was a big deal. Frankly, we’ve offered an off ramp to Maduro for some time. If he was willing to move in the direction of democratic norms, we were willing to relax sanctions. He chose not to do so. And that’s unfortunate. I think we inherited the maximalist sanctions regime. Put us in a bad position. And I think we’ve been trying to work our way out of it.

With Sudan, you know, the State Department found that Sudan’s Rapid Support Forces had committed genocide. That’s a very high bar. And so we responded. And then with Hungary, we announced a sanctions designation against one of Orban’s top aides who was the subject of a Global Magnitsky designation for serious human rights abuses and corruption. And here, again, there’s—we have a geopolitical objective to prevent any corrupt actors that are committing egregious human rights violations from having safe harbor in our financial system.

I think if one were to quibble about some of these latter measures, the question you would raise is efficacy. And I think, you know, to the extent that these principles get embedded into the practice of sanctions, you know, we should—we should require and demand that even if there’s a geopolitical principle that we’re upholding, whether it’s taking a stand against corruption or human rights abuses, there also has to be some threshold of efficacy that’s passed. And here I think reasonable people can debate whether we’ve done so.

KIMBERLY DONOVAN: That’s great. Thank you. And I very much appreciate all the sanctions that have come out over the past couple weeks. It really demonstrates the full range of these—the tools that we have at our disposal. And if you have time for one more question.

DALEEP SINGH: Sure, sure.

KIMBERLY DONOVAN: I just really wanted to get your thoughts. I appreciated that earlier this week President Biden laid out, you know, his legacy on foreign policy, and including, you know, where we strengthened the US position and our relationships with partners, as well as weakened our adversaries’ position around the world. And I was just wondering, from your perspective and your time as the deputy national security advisor two times—you know, what are some of your kind of biggest accomplishments? I mean, what are the memorable moments for you?

DALEEP SINGH: That’s a tough one for me. I mean, it’s just—I would need time and distance to give you a proper answer. But there’s nothing like—there’s nothing I have done alone, I promise you that. And anything good that we have done has benefited from those who did it before us, that’s for sure. I mean, honestly, rather than point to anything specific, maybe I can come to some of that, but what I have cared about most is creating a culture of conducting economic statecraft that I hope—that I hope endures. You know, because I think we are living through this extraordinarily uncertain moment where you have the intensification of geopolitical competition interacting with the polarization of our domestic political climate, all in the aftermath of a post-pandemic economy that’s still feeling the ripple effects of the shock. And so the uncertainty bands around what can unfold have widened dramatically.

And I think culture is really—having a cultural mindset in which we’re just constantly pressuring and probing our own base case, you know, attacking our own lazy narratives, trying to help each other see our blind spots, and trying to imagine as much as possible what could happen, because I always—things that have never happened are happening all the time, that’s the kind of culture that will allow us to make better decisions. And we made—I have made plenty of mistakes. But to the extent that we are caught off guard, if we’re surprised less often and we react better and we are surprised, we’re doing something well.

The only other thing I would say, in terms of culture, is we have really cared about relationships abroad. So I think the G7 really has become much more than a talk shop over the past four years. We’ve taken a number of actions which most people would have said the G7 would never take together. And that only happened because we did hard things together, like straight away. I remember in Cornwall in 2021, the first G7 summit, you know, we started—we started to do those things.

We agreed to give away a billion vaccines, which at the time was a big number, to the countries that were most in need, from our own stocks. We agreed with the EU to put down a seventeen-year tariff dispute between Boeing and Airbus. We came up with a transatlantic data privacy shield agreement. Those were hard things to do that built trust. And so then when the tanks rolled across the border on February 24 the subsequent year, we had relationships. You know, so we could—we could freeze over $300 billion of central bank reserves of Russia within forty-eight hours, because we trusted each other and we knew that we shared the same values, we had the same goals, and we’d have each other’s backs, to the extent that we could.

And then this year, you know, I came back. Most people said, you are—you are nuts if you think that you’re going to harness a dollar of the reserves that have been frozen for the benefit of Ukraine. And, you know, we listened to all the red lines. We listened a lot. And listening is a very important, and perhaps underappreciated, skill of diplomacy these days. And we found a way to maintain solidarity and to respect the rule of law, and still find fifty billion dollars of value that we could harness from those reserves to help forty-four million innocent people who have been terrorized for almost three years now fight for their freedom. I’m proud of that.

KIMBERLY DONOVAN: That’s fantastic. Thank you. And I know you have to get going, so just thank you so much for chatting with me today, thank you for your service, and thank you for your leadership in economic statecraft.

DALEEP SINGH: My pleasure.

KIMBERLY DONOVAN: And I would now like to—sorry, Will, but I would now like to introduce my GeoEconomics Center colleagues Alisha Chhangani and Mrugank Bhusari, who are going to review their research on the role of the US dollar and launch our new Dollar Dominance Monitor. Thank you.

ALISHA CHHANGANI: Thank you so much, Kim. And thank you so much, Daleep, for joining us today.

Very excited to be sharing a new update of our Dollar Dominance Monitor. The role the dollar plays in the international financial system is so core to the work we do at the GeoEconomics Center, so we’re very excited to be sharing this update.

So, Gank, the dollar has been the world’s reserve currency since World War II and the dollar has enjoyed this privilege for the last sixty years. But there’s kind of two roles the dollar plays, the macroeconomic role that we’ll talk about in the tracker—the reserves and transactions and trade—but there’s also a national security role of the dollar. And Daleep brought this up today.

MRUGANK BHUSARI: Yeah. As Daleep has mentioned multiple times in his speech and in the event, the US can wield influence in the global economy because everyone uses the dollar. It’s really central to the US power in the global economy.

And in the last two, three years, there’s two things that have happened simultaneously. In 2022, the US and the G7 sanctioned Russia. And also, the US Federal Reserve increased interest rates. So many emerging markets all around the world were now thinking about their dependence on the dollar, and they’ve been trying different things to reduce their dependence on the dollar. They’ve been trying to trade in domestic currencies. They’ve been building new infrastructures to facilitate that trade.

And in the media when we see these reports they’re often very alarmist, and they often miss a lot of context and data that we think is really important to bring to the discussion. And that’s why we created last year the Dollar Dominance Monitor, which brings in one spot all the data on the international reserves, on debt, on banking, on transactions, as well as what are different countries doing to reduce their dependence on the dollar and how is that progress going.

And today we’re launching a new major update to this data. And, Alisha, let’s dive right into it.

ALISHA CHHANGANI: So let’s get into the data. So let’s kind of walk through the three kind of main topline numbers that we are using to say—and the key takeaway for us is the dollar status as the reserve currency is secure in the short and medium term. And so these are the three topline numbers that we’re using to make this point.

First of all, the share of global foreign reserves. The dollar makes up 57 percent. And just to put this in perspective, just take a look at the euro. Take a look at the pound.

MRUGANK BHUSARI: They’re pretty small.

ALISHA CHHANGANI: Pretty small.

The two other numbers that I think are very important is this 54 percent. So the US is involved in about 12 percent of global trade, but it makes up 54 percent—or, the dollar touches 54 percent of export invoicing.

And third and finally, 88 percent in foreign exchange—in exchange transactions. So this means that nine out of ten transactions are touching the dollar. That’s huge, and basically makes our point that the dollar is so entrenched into the financial system and that the dollar is being used around the world outside of the United States.

MRUGANK BHUSARI: Even countries that are not the United States are using the dollar to trade between other countries, so that really tells you how deeply entrenched the dollar is in international trade and finance.

And, Alisha, you mentioned 57 percent, which is the share of—share of global reserves that are denominated in the dollar. Last year, when we launched this tracker, it was 59 percent, so a drop of two percentage points, which you might think is not a lot. But there you see—you can see a general downward trend for the US dollar since 2016, which is when the IMF data got really more complete.

But what you notice also is that this loss in US share is not being picked up by any single currency. It’s actually being distributed across all currencies, most notably in this “others” section. In this “others” is really the Canadian dollar and the Australian currency. And so what we see here is that the dollar’s reserve currency status, even though it’s becoming less dominant, is not necessarily—there’s no new competitor that is rising to compete against the dollar.

And we also have a lot more data that we invite our audiences to look through. We have data on currency transactions, on debt, and on banking. So please do take a look, and you will see that the dollar still maintains its share—at least maintains or has increased its share across these indicators.

ALISHA CHHANGANI: So, Gank, let’s go through probably my favorite part of this monitor, and this is this database that we use to track what it takes to be a reserve currency. And I think this is a very unique way of showing why the US dollar is the reserve currency, looking at its competitors and other currencies to see these six qualities that we have identified that makes the dollar the reserve currency. And here are some of the six that we have identified, but you’ll notice that there’s some shading. And the darker the color is, it’s more stronger in that quality, like the sizeable domestic economy, the size and depth of the financial markets. And so you’ll notice that the US dollar is very dark in many of these, and you can explore these much more there.

But, Gank, my question here for you is that the euro is also fairly dark here. What’s going on there?

MRUGANK BHUSARI: Well, it’s an interesting story, that one, and—because the euro has traditionally been considered as a competitor for the dollar. And you do see that it is dark across all six indicators, but these are just the basic requirements that you must have for the potential of being an international currency. The euro specifically has faced three challenges in the last few years that really have not helped it rise as a competitor truly to the dollar.

The first is that it joined the G7 sanctions, as Daleep mentioned. Any country that is looking to de-dollarize to sanction-proof its economy, there’s no point in moving to the euro because you’re also going to get sanctioned over there.

The second is financial markets and also interest rates. ECB’s interest rates and the Fed’s interest rates have moved generally in the—in similar directions for several decades. So if you want to reduce—if you want to enhance monetary policy sovereignty, the euro’s not the way.

And most importantly I think, it’s the lack—it’s the absence of a capital markets union. If you invest in the euro, you’re investing in many different countries. Each country has its own rules. Each country has its own market. And that—the absence of a market is making it really difficult for investors to really, truly invest in the euro in the same way that they look at the dollar as a store of value.

And so these are the reasons why the euro has not really risen as a competitor yet. And what I really find interesting here is also the renminbi. We all talk about how the renminbi could be a challenger, but it’s actually really light on all of these indicators. The only one where it really has a dark color is the share of global GDP. So, Alisha, now we have a good sense of where the dollar stands right now as an international currency. So let’s look at what countries are trying to do to reduce their dependence on the dollar.

And you’ve really looked at BRICS and the Kazan summit. This is something we’ve discussed, and you’ve written on a lot. So take us through it. What’s happened in Kazan?

ALISHA CHHANGANI: Yeah, for sure, Gank. So basically, the BRICS summit happened in Kazan last year in October. And a lot of conversations were happening on whether BRICS will create a common currency. Obviously, those plans were eventually ditched and they went to create something alternative, which is creating a cross-border payments infrastructure. And this kind of materializes in these three main projects.

But the main point here, Gank, is that they’re trying to make financial infrastructure to trade in their own national domestic currencies. And these are three individual projects that we found super interesting—BRICS Pay, BRICS Clear. But probably the most interesting to me is the BRICS Bridge. And the BRICS Bridge is using digital currencies, central bank digital currencies—Gank, you know, we’ve been interested in this at the GeoEconomics Center—as the backend for the financial infrastructure.

And this project will probably develop in the next couple of years. And we’d be looking into seeing what’s happening there. But with this table right here, we’ve also included some examples to kind of contextualize how these projects can actually be used in real life. But I do want to emphasize, Gank, really quickly, that these projects are in their early stages of development. They’re mostly words on paper, small agreements. There’s still a lot of internal disagreements that make negotiations around these projects extremely difficult. Which is why we’ve titled this section, “A Scattered Approach to De-dollarization.”

MRUGANK BHUSARI: Yes, Alicia, you’re completely right. Every country in BRICS has some issues with the dollar, but the issues are very different. So just look at Russia and Iran, for example. They are sanctioned. They have no choice but to look at other currencies, to look at domestic currencies. They have no—they have no other option. But India, on the other hand, for example, is looking to enhance monetary policy sovereignty. It wants to be able to trade with countries that do not have access to the dollar, or that have—that no law no longer dollar reserves. Egypt, on the other hand, it wants to enhance its access to global financial markets and capital markets because it has had some troubles in the past repaying debt denominated in dollars. So it’s looking at Japanese bonds and these kinds of other financial instruments.

These all bring different levels of urgency to the question of de-dollarization, and how do they deal with the dollar? So we’ve seen BRICS move very slowly. Russia this year, it did bring forward a lot of proposals which were actually agreed to and accepted. But they’re moving slowly because they don’t want these disagreements to rise up to the top. They want to keep it low enough that every country is fine with agreeing to it and moving on to see what happens.

And, Alisha, in the event we also mentioned—Daleep and Kim mentioned CIPS. And this is something that we’ve also been tracking. And we have data over here on what—how many banks are members of CIPS. And this is a part of—CIPS is the Chinese Interbank Payment System that they have developed to facilitate these transactions.

ALISHA CHHANGANI: And within just the last two years, the transaction volume has increased 80 percent on CIPS. And several of the BRICS members are involved and are direct members of CIPS. So we can really see that infrastructure being built. To your point, the renminbi probably doesn’t have a chance to challenge the reserve currency status, so it’s using alternative frameworks, that including the CIPS mechanism, to kind of challenge the role the dollar, and continue to use the renminbi in international transactions.

MRUGANK BHUSARI: And in this tracker we have—for every BRICS member we have included the size of the swap line that they have with the PBOC, which helps them build liquidity in the system if they ever need renminbi and they’re falling short of it, and also the number of members—direct members of the CIPS system, which Alisha just talked about. So we know exactly which banks and how many banks are part of this system, which gives you a sense of how CIPS is growing. And so, Alisha, you’ve spent the last six months working on dollar dominance and working on this subject. What are you looking for in 2025? Or, what are you keeping your eyes on?

ALISHA CHHANGANI: It’s a really good question, Gank. I think for me it’s the advent of financial technology in payments and payments architecture. We already see BRICS taking steps towards including, you know, central bank digital currencies and digital technology in their payments infrastructure. And I think this is going to play a bigger role. As Daleep mentioned, mBridge is becoming a larger project and is going to invite more members. Really looking at 2025 to see if the G7, the United States, and its allies can build an alternative that, you know, is using technology to make payments faster, safer, and cheaper for people.

What about you, Gank? Same question back to you.

MRUGANK BHUSARI: It’s fascinating. And I’m really watching out—or looking out for what the Trump administration does. President Trump himself and his administration has taken a keen interest in the dollar’s international role. In fact, the treasury secretary nominee Scott Bessent is at the Senate right now on Capitol Hill, where he has said that maintaining the dollar’s international role is critical for the US—the economic health of the US. And this—he has already threatened tariffs against BRICS countries, and also other economies that prop up a new currency as an alternative. I don’t think that’s likely, and I don’t know how it would happen.

But it does give you a sense that President Trump is taking this as a very serious concern. So BRICS members, especially those members that want to maintain close ties with the US, and with the West, and with the G7, will tread very carefully over here, because they don’t want to do anything to antagonize President Trump in his first few months in office. So that is something that I’ll be watching out for.

And so that is the tracker at large. And we welcome all of you to please explore. And, as always, we welcome your feedback, your thoughts. And we will be publishing analysis based on this tracker in the next few weeks. So keep an eye out for our new research. And we want to thank all of the GeoEconomics Center as well as well as the Atlantic Council’s engagement team. And especially thanks to Maia Nikoladze, who helped lead this project in its original design phase throughout 2024. And, Josh, with that, back to you.

JOSH LIPSKY: Well, thank you, Gank and Alisha, for that fantastic presentation. Thank you, Maia, for your contributions to this project since its inception last year. Everyone can check out the Dollar Dominance Monitor on the Atlantic Council website. I want to take a moment to thank the entire team of the GeoEconomics Center, as we mark our anniversary here. And if I could ask them to stand up. Charles Lichfield, Ananya Kumar, Maia Nikoladze, Sophia Bush, Jesse, Elizabeth de Kruijf. And you met Alisha and Gank earlier and, of course, Kim Donovan. This is our team. Please give them a round of applause. They help produce the amazing work you see every day. They are also geoeconomists at heart.

Now, next week a new chapter begins in Washington. And our commitment here at the Atlantic Council and at the GeoEconomics Center will remain the same. We will deliver world-class, data-driven analysis and provide a roadmap to help navigate the challenges of the era. First up, we are very proud to host Governor Waller of the Federal Reserve on February 6 for a special event on the future of the dollar and payment systems. We hope you join us in February. We wish everyone a pleasant rest of the day. Thank you for being here with us this morning.

Watch the full event

Further reading

Dollar Dominance Monitor

The Dollar Dominance Monitor analyzes the strength of the dollar relative to other major currencies across the world. The project presents interactive indicators to track China’s progress in developing an alternative financial infrastructure.

New Atlanticist

Feb 22, 2024

Forging a positive vision of economic statecraft

By Daleep Singh

The United States must institutionalize how it uses economic tools in the context of today’s great power competition.

China Economic Sanctions

Report

Sep 20, 2023

The US, EU, and UK need a shared approach to economic statecraft. Here’s where to start.

By Kimberly Donovan, Maia Nikoladze, Nicole Goldin, Mrugank Bhusari, Sarah Bauerle Danzman, Ambuj Sahu, and Daniel McDowell

The economic statecraft landscape is becoming more complex as transatlantic partners increasingly leverage the tools to counter transnational threats. There is a growing need to understand how these tools are used, by whom, and when, as well as their intended and real impacts worldwide.

Economic Sanctions Economy & Business

The post Daleep Singh outlines five principles to guide—and constrain—the use of economic statecraft tools appeared first on Atlantic Council.

Watch the speech

Public Event Thu, January 16, 2025 • 10:00 am ET

The future of economic statecraft with Daleep Singh

A conversation on the future of economic statecraft with Deputy National Security Advisor Daleep Singh

Economic Sanctions Economy & Business United States and Canada

On January 16, 2025, US Deputy National Security Advisor Daleep Singh spoke at the Atlantic Council on the US principles of economic statecraft. His remarks as delivered are below, and the full transcript of the event, including Singh’s conversation with Atlantic Council Economic Statecraft Initiative Director Kimberly Donovan, is available here.

During this century, major powers have deployed economic sanctions and other restrictive tools of economic statecraft to an unprecedented degree. The number of sanctioned individuals and entities across the world has increased by an order of magnitude since 2000. Tariffs and other trade restrictions have tripled over the past five years. The percentage of OECD countries screening investments in sensitive sectors has risen over the past decade from less than a third to more than 80 percent, while the number of countries with sophisticated export controls has quadrupled since their inception during the Cold War.  

These trends are global, and while precise data are difficult to source in many jurisdictions, the growth of restrictive economic measures is accelerating both from the United States and our strategic rivals. China, despite having issued the lowest cumulative number of explicit sanctions among major economies, increased its designation activity by almost 100 percent last year—the highest rate of growth within this peer group—on top of its existing array of informal and extralegal barriers such as consumer boycotts, tourism restrictions, phytosanitary standards, and corporate pressure. Russia, for its part, now applies its own sanctions regime at scale and is routinely weaponizing its commodity exports—including nickel, tin, titanium, refined uranium, and, of course, oil and gas—to coerce trading partners and adversaries.

In my judgment, the trendlines are set to extend, for three main reasons.

First, sanctions and other restrictive measures are symptomatic of new and durable geopolitical realities. As Josh just mentioned, we’re no longer in the post-Cold War, unipolar order that underpinned the so-called “great moderation” of the global economy. Instead, we’ve returned to the “old normal” that prevailed for much of modern history, in which divergent forms of national governance and political ideology lead to intense geopolitical competition, less opportunity for cross-border cooperation, and greater risk of cross-border conflict. Since most of today’s “great powers” are also nuclear powers, barring catastrophic miscalculation, the logic of mutually assured destruction suggests that direct competition is likely to continue playing out mostly in the theaters of economics, energy, and technology, rather than in kinetic conflict on the battlefield. Set against this backdrop, the range of potential outcomes—the promise and peril for major powers to rise and fall—has widened, ushering in an era of more active use of economic tools to shape the course of events.

Second, these trends reflect opportunity. Though we’ve left the era of hyperglobalization, the world economy is still nearly as connected as ever—which provides scope for economic powers to break existing linkages, or threaten to do so, in exchange for geopolitical leverage. The ratio of global trade to global GDP has plateaued not far from the peak reached earlier this century. Worldwide foreign direct investment declined sharply after the pandemic but is rebounding and still exceeds the long-term historical average at well over a trillion dollars per year. Technological diffusion across borders remains largely unabated for all but the most sensitive items, in part because US restrictions on technology remain narrow and targeted.

Third, the succession of cross-border shocks this century—most prominently the COVID pandemic, but also financial crises, climate change, mass migration, and acute episodes of energy and food insecurity—have all punctuated the sense among policymakers that the singular pursuit of maximal efficiency and minimal cost will leave critical supply chains insufficiently resilient against a more volatile and uncertain global backdrop. Here in the United States, the Biden administration centered its geoeconomic strategy on making long overdue public investments at home and building partnerships abroad to strengthen and scale our productive capacity, but we also imposed targeted tariffs in strategic sectors to level the playing field against competitors playing by a different set of rules. Under the same rationale, many other leading economies have also implemented a similar mix of policies—including tariffs—to “de-risk” their supply chains from disruption and distortion.   

Indeed, there is a growing policy reflex across the world to navigate a more uncertain and turbulent world by applying a sanction, a tariff, an export control, or an investment restriction. As President Biden reminded us, however, these measures are never costless. In each instance, they weaken or sever economic bonds that took decades to build, with immediate and sometimes unintended costs for households and businesses. And though in our administration we’ve deployed restrictive measures in service of a higher geopolitical objective—not as an end to themselves—their repeated use can invite skepticism about American stewardship of the global economy.

To the extent that our use of restrictive tools is perceived as arbitrary or illegitimate, the incentive to “hedge” against perceived dependency on the United States will rise. China and Russia are making every effort to increase their and others’ capacity to do so in finance, technology, and other domains in which the United States has a dominant position.

Take, for instance, China’s longstanding effort to build a cross-border payment architecture without any nexus to the US financial system—and therefore outside the reach of US sanctions authorities. Several nonaligned G20 economies have already signed up for this platform, and while the volumes transacted are far from reaching a threshold of macroeconomic significance, they have already surpassed a threshold of geopolitical consequence, with a run rate large enough to intermediate a significant portion of Russia’s procurement of dual-use items from China that are finding their way to the battlefield in Ukraine.

In addition to strengthening the incentives to hedge against the sources of American economic power, the unconstrained use of restrictive economic statecraft also invites efforts by adversaries to deploy these same tools to target our own and our allies’ vulnerabilities.

This isn’t conjecture, but rather a description of reality. The PRC is by far the world’s largest supplier of manufactured goods, accounting for almost a third of global manufacturing in value-added terms—equivalent to the combined production capacity of the United States, India, Japan, Germany, and South Korea. From this position of strength, China has already weaponized its economic leverage in its attempts to coax geopolitical concessions from smaller trading partners such as Lithuania, Australia, Japan, and South Korea. It also has untapped potential to exploit chokepoints in a wide range of supply chains in which it has dominant market share and where the current productive capacity of the United States and our allies is limited for now, including medical equipment, ship-to-shore cranes, solar panels, EV batteries, pharmaceutical ingredients, lagging-edge semiconductors, and so on. Russia restricted its export of enriched uranium last November, creating the risk of disruption to our and allied nuclear power production, and for years has attempted to coerce Europe by modulating its supply of natural gas. Iran and its proxy forces have repeatedly exploited their control over the [Strait] of Hormuz and Red Sea shipping lanes to pressure the United States and its allies.

Against this backdrop, we have an urgent need to implement a set of principles that guide and constrain why, how, when, and to what extent we deploy restrictive economic tools. I believe this effort should have three overarching goals: first, to sustain the credibility and the potency of America’s economic statecraft toolkit for when we need it most; second, to prevent an escalatory tit-for-tat in the use of restrictive tools that could make the United States and the world worse off; and third, to update the rules of the international economic order we’ve worked to build and sustain for over seventy-plus years.

I suggest we seek to embed five principles in the practice of restrictive economic statecraft, first in our own conduct, and then among allies, nonaligned countries, and eventually our adversaries.

First, economic and financial sanctions should be used sparingly and in service of clearly defined and achievable geopolitical objectives.

Sanctions are a tool, and often a force multiplier, but never a standalone strategy. They should be designed and deployed in service of a geopolitical objective that policymakers outline prior to implementation and assess periodically afterward.

Prior to articulating the objective, policymakers would be well served to analyze and explain—at least internally—how they expect an economic measure to influence the decision-making calculus of the target, how they are expected to reinforce other levers of foreign policy—military, diplomatic, humanitarian—and the degree to which a multilateral coalition is necessary for their success.

These objectives could be pursued before an adverse “trigger” event occurs, either to deter a target’s malign behavior, degrade its capabilities, or both. Alternatively, or additionally, these measures can be imposed after a trigger event to impose costs, change the calculus of the target, or create leverage for an eventual diplomatic settlement.  

In every instance, the objective should be achievable. Efforts to engineer regime change through maximalist sanctions, for example, predictably fail to persuade the target, often an autocrat, that the benefits of sanctions relief outweigh the costs of giving up power—which is typically jail, or worse.  

Relatedly, the individuals or entities being sanctioned need to know why and for what behavior they are being penalized, so that the consequences of an action—whether it’s support for a terrorist organization, a serious human rights abuse, or the prosecution of an illegal war—are understood, such that the key actors can ultimately seek the reversal of these sanctions through a change in behavior.

Second, the force of restrictive actions should be responsibly calibrated to their expected impact, spillovers, and associated uncertainties.

As the leading economic and geopolitical force in the world, restrictive measures imposed by the United States are capable of imposing great and lasting harm, producing ripple effects that are impossible to identify fully in advance. The force of our restrictive actions must be calibrated in proportion to their expected impact, their spillover costs, and the uncertainties involved.

This requires the US government to continue building the analytical muscle to conduct rigorous, data-driven analyses on historical and imagined scenarios in which restrictive measures could be implemented—whether unilaterally or multilaterally, alone or in tandem with military and diplomatic levers, before or after a trigger event.

Assessments should highlight the degree to which the range of outcomes depends on the breadth of the implementing coalition, the target’s potential to mitigate the impact—for example, by substituting the good or service with domestic supply or import from third countries—and our own vulnerabilities and potential for risk mitigation in an extended and escalatory conflict.

Third, policymakers must consider explicitly and upfront the efficacy of restrictive measures on the decision-making calculus of the target.

The design of restrictive measures is typically prepared by those with expertise on how to impose costs on the macroeconomy and the financial system of the target while minimizing spillovers to the US and the global economy. While this is a vital and necessary contribution, the ultimate success of restrictive measures depends on how these costs are likely to influence the decisions of key actors in the target country or entity. It also depends on the extent to which these actors are influenced by their economic, political, social, and humanitarian impact on political elites and the civilian population of the target. Meeting the analytical test of sufficiency requires the upfront and explicit integration of economic analysis with political intelligence.

Fourth, restrictive measures should be maximally coordinated, both with domestic stakeholders and international partners.

Unity with partners multiplies the impact of restrictive measures—due to the higher impact it delivers on the target, the reduced opportunity for evasion, and the perceived legitimacy of the action. This last point on legitimacy is critical: It makes clear that our purpose is not the unilateral exercise of brute economic force, but rather the collective defense of shared principles that underpin peace and security around the world.

It’s also critical that restrictive measures are explained to the range of stakeholders that transmit the force of these measures to the real world—including private sector, the regulatory community, and central banks. Private sector actors, in particular, are often the “front lines” of implementing financial sanctions and export controls, and we depend on their cooperation and their sense of civic duty to spot and counter circumvention. In exchange, we owe them clarity and coordination.

Finally, restrictive measures must be flexible and adjust to unintended consequences, evolving economic and financial conditions, and the reaction of the target.  

Even after exhaustive analysis and careful design, restrictive measures are blunt tools that are typically implemented under conditions of high uncertainty—often with little or no precedent from which to make confident projections about their likely effects. 

It should surprise no one when the impact delivered, or spillovers caused, are materially different than expected. Humility requires us to admit when we’re mistaken in our judgments and to course correct as needed.

Separately, the context in which restrictive measures are applied inevitably evolves. The coalition that implements sanctions may grow or decline. Economic and financial conditions may change for the better or worse, both in the target country and within the implementing coalition. Political and power dynamics within the target may harden or soften, along with the behavior we seek to influence.

All of these are reasons why we must have timely and demonstrated pathways to ratchet higher or lower the scale and scope of restrictive measures, to adjust the channels through which we deliver impact, and to stand ready for mitigation of unanticipated risks or costs.

Under the leadership of President Biden and National Security Advisor Jake Sullivan, we’ve made important strides in putting these limiting principles into practice—not in a formalistic sense, but in real-time as events unfolded—and often in ways that have never been made public. Each of the principles I’ve just described animated the design and the execution of the sanctions program against Russia; the intuition of the oil “price cap” coalition; the logic of the “small yard and high fence” for our export controls and our investment restrictions; and the targeted nature of the tariffs we deployed against China in strategic sectors.

I’d like to close my remarks, and my time in government, with three recommendations on how to institutionalize these practices. Of course, it’s not going to be for me or us who are still in the Biden Administration to decide whether and how these get implemented, but I believe emphatically they would each serve to advance our shared bipartisan interests to safeguard America’s national security while enhancing our economic prosperity.

First, much as we restructured our national security apparatus amid rising tensions in the aftermath of the Second World War, this is a moment to evaluate whether the US government’s organizational design for conducting economic statecraft is fit for purpose. Too many of our tools and too many of our subject matter experts are spread across too many agencies without a unifying set of incentives, objectives, and metrics for strategic success. Japan pioneered the elevation of economic security to a cabinet level in 2021, and we would be wise to consider following suit in this new era of geoeconomic competition—particularly so that we could strike a deliberate balance between restrictive tools that impose economic pain and positive tools that offer the prospect of mutual economic gain.

Second, we have to continue to upgrade what I call the “analytical infrastructure” of economic statecraft—the personnel, the technology, the data, and connectivity to continually assess the efficacy, limitations, and tradeoffs of using our restrictive tools; to “stress test” and wargame their use against historical and simulated scenarios; to anticipate where and how evasion is likely to occur and build readiness for countermeasures that could be deployed in real time; to build surveillance capabilities that provide early warnings on developing economic security threats; and to maintain the capacity to execute at pace, even if multiple conflicts emerge at once. While these and other demands on the practitioners of economic statecraft have grown exponentially, their available resources have increased only at a linear rate, and often much less.

Finally, we should begin a series of conversations that aim to forge a common vision on the rules of engagement for why, when, how, and to what extent restrictive measures are used across the world. We should start with our allies and then seek to build consensus with nonaligned or multi-aligned countries. Ultimately, in the same spirit of the Geneva Conventions, we must include our adversaries in a good faith effort to avoid creating a fractured economic system that damages lives and livelihoods across the world and brings us closer to the hot conflicts that economic statecraft seeks to avoid.

Watch the full event

Further reading

Dollar Dominance Monitor

The Dollar Dominance Monitor analyzes the strength of the dollar relative to other major currencies across the world. The project presents interactive indicators to track China’s progress in developing an alternative financial infrastructure.

New Atlanticist

Feb 22, 2024

Forging a positive vision of economic statecraft

By Daleep Singh

The United States must institutionalize how it uses economic tools in the context of today’s great power competition.

China Economic Sanctions

Report

Sep 20, 2023

The US, EU, and UK need a shared approach to economic statecraft. Here’s where to start.

By Kimberly Donovan, Maia Nikoladze, Nicole Goldin, Mrugank Bhusari, Sarah Bauerle Danzman, Ambuj Sahu, and Daniel McDowell

The economic statecraft landscape is becoming more complex as transatlantic partners increasingly leverage the tools to counter transnational threats. There is a growing need to understand how these tools are used, by whom, and when, as well as their intended and real impacts worldwide.

Economic Sanctions Economy & Business

The post The world needs a common vision for the responsible use of economic statecraft tools appeared first on Atlantic Council.

We calculate that China’s property and local government-driven slowdown was far more severe in 2024 than reflected in official data, as has been the case in previous years as well. Official data is not consistent with China’s growth and its impact on the global economy. Macroeconomic data shows good news of growth consistently hitting targets: if that were the case, Beijing’s increasingly aggressive policy actions aimed at propping up the economy would not be necessary. 

Rhodium Group estimates that China’s GDP grew between 2.4 percent and 2.8 percent in 2024, well below NBS figures. Looking ahead, after three years of drag from the property crisis, China’s economy should see some cyclical improvement in 2025. This is partly because property has fallen far enough. Just as importantly, Beijing is finally acknowledging the urgent need to stimulate domestic consumption. Policy actions pledged so far are likely to boost growth to the 3 to 4 percent range in 2025, perhaps even as high as 4.5 percent—but only if everything goes Beijing’s way.

While Beijing’s claim that it made its targets in 2024 is simple, the real performance is more complex. Here is a cheat sheet for looking at the actual 2024 economic performance, and the outlook for 2025, using an expenditure-side GDP framework. 

2024 in review

Investment growth was probably flat at best. It most likely declined again in 2024, driven by the slowdown in local government investment, particularly in infrastructure. The property sector continued to decline, with new starts down by 23 percent through November and completions down by 26 percent. Private sector fixed asset investment fell even in official data.

Household consumption likely contributed somewhere between 1.3 and 1.6 percentage points to 2024 growth. According to NBS household survey data, real per capita household expenditure expanded by over 5 percent. But this is hard to square with other indicators, which show retail sales growth at half the 2023 rate, consumer confidence at rock bottom, consumer price inflation near zero, and declining e-commerce sales.

Government consumption growth was probably weakly positive. Monthly government expenditure data show meager overall spending growth of around 1 percent, dragged down by local government fund expenditure, which contracted for the fourth consecutive year. The stimulus package announced in November focuses on refinancing local government debt at lower interest rates, which is necessary from a debt sustainability perspective but will have a limited impact on government consumption.

Lastly, net exports are on track for their third-largest contribution to China’s growth this century. Exports rose 6.7 percent in value terms year-to-date through November, and falling export prices—partly a symptom of China’s industrial overcapacity—mean that real exports have been even stronger. Imports have been weak due to subdued domestic demand.

The outlook for 2025

Investment is likely to return to positive growth in 2025. Construction activity will stabilize, with new housing starts now below Rhodium estimates of long-term equilibrium demand. Local government infrastructure investment should improve as well, given more aggressive fiscal deficit spending. Private investment will likely remain weak, however, given the overall constraints on credit growth and continued deflationary pressures in producer prices.

Boosting household consumption was the top message at the December 2024 Central Economic Work Conference. However, policy support is mostly focused on expanding trade-in subsidy programs for consumer durables, which have had an unclear impact on aggregate consumption. Meanwhile, the profound negative wealth effects from the real estate crisis and fragile labor market conditions continue to depress consumer confidence.

Government consumption should contribute more to growth in 2025. The government has promised a stronger fiscal impulse, reportedly including an expanded fiscal deficit target and larger special treasury bond issuance. Still, China’s fiscal system will remain constrained by weak revenue growth. 

China’s net exports outlook is deeply uncertain, pending the scope and timing of potential US tariffs. China’s possible responses include a combination of its own tariffs, currency depreciation, and targeted export restrictions. If global markets remain open to China, growth in China’s record-high trade surplus is likely to be small but positive.

Overall, the picture for 2025 is one of near-term improvement, but this should not be mistaken for a long-term recovery. Overinvestment in manufacturing remains a serious challenge—one that will make China’s trading relationships more fraught in 2025. Rebalancing toward a consumption-led economy will require much deeper economic liberalization.   

Daniel H. Rosen is a nonresident senior fellow with the Atlantic Council’s GeoEconomics Center and a founding partner of Rhodium Group where he leads the firm’s work on China, India and Asia.

Jeremy Smith is a Research Analyst with Rhodium Group’s China practice, focusing on China’s evolving growth dynamics and economic engagement with the world.

Data visualizations created by Jessie Yin

At the intersection of economics, finance, and foreign policy, the GeoEconomics Center is a translation hub with the goal of helping shape a better global economic future.

Learn more

The post China’s economic performance: New numbers, same overstatement appeared first on Atlantic Council.

The post Event with Jan Hatzius featured in MarketWatch on Trump’s ability to follow through with campaign promises regarding the economy appeared first on Atlantic Council.

The post Bauerle Danzman quoted by Foreign Policy on how blocking the Nippon-US steel deal might impact Japanese investments into the US appeared first on Atlantic Council.

The post Event with Jan Hatzius featured in Politico’s Morning Money newsletter appeared first on Atlantic Council.

Iraq’s 2023-25 federal budget proposal, as initially proposed by the Council of Ministers, included three major departures from prior budgets in terms of its unprecedented spending plans, its three-year period instead of the usual one, and in how it dealt with the Kurdistan region of Iraq (KRI)’s share of the budget.

In particular, the sections of the 2023-25 budget proposal that address the KRI’s share in exchange for its contributions in oil exports addressed the contentious issue of federal allocations for the costs for the KRI’s oil production and exports. This was made by the inclusion among sovereign expenditures of around 50 percent of the payments to the international oil companies operating in the KRI, as well as the transportation costs of the KRI’s oil exports. The result was the end of contradictions inherent in similar sections that bedeviled prior budgets, which did not to take into account the key structural inconsistency of the Kurdistan regional government’s (KRG) own budget.

Essentially, the KRG budget needed the revenues both of its independent oil exports and of its share of the federal budget to meet most of its spending obligations. Consequently, the KRG could not honor its contributions to the federal budget in the form of oil exports, and therefore the government of Iraq could not release the KRI’s share of the budget, as that share was conditioned on its contributions in oil exports according to the same sections of prior budgets. Promisingly, the 2023-25 budget proposal’s sections pertaining to the KRI’s share in return for its contributions in oil exports, combined with the April 2023 agreement between the government of Iraq and the KRG on the resumption of the KRI’s oil exports, effectively amounted to an oil and gas revenue sharing mechanism. This mechanism had the potential to end the linked disputes over the developments of the country’s hydrocarbon resources and over the KRI’s share of the budget—and in time could have become a building block for a federal oil and gas law.

This oil and gas revenue-sharing mechanism, and with it the potential for a federal oil and gas law, were derailed by the Council of Representatives’ major changes to the 2023-25 budget proposal’s articles dealing with the KRI’s share of the budget. However, intentionally or not, the Council of Representatives did not make the corresponding changes to budget tables that dealt with the calculations of the KRI’s share. These unchanged calculations were preserved in the updated 2024 budget tables which were the subject of a companion piece, “Iraq’s 2024 budget: Not what it appears when it first meets the eye.” The KRI’s share of the budget has always been more than meets the eye, a share that increased meaningfully in the 2023-25 budget and increased further still in the updated 2024 budget tables, as this report will unpack.

The first part of this report reviews how this share is calculated, the details of the direct and indirect allocations making up this share, and the KRI’s contributions to the federal budget. The second part revisits the significant departures introduced to the KRI’s share by the 2023-25 budget and the 2024 updated tables. Finally, the third part looks at the reset of the relationship between the Kurdistan regional government and the government of Iraq that introduced these significant departures, even after the major changes introduced by the Council of Representatives to the budget’s articles.

Report Nov 16, 2022

KRI positioned in prominent role in global gas markets

By Ahmed Tabaqchali

A new report, The Kurdistan Region of Iraq’s Gas-Export Potential: Deja Vu All Over Again, authored by Atlantic Council senior fellow Ahmed Tabaqchali, considers the Kurdistan Region of Iraq’s (KRI) proven and probable gas reserves having the potential to nearly triple production by 2030 and more than sextuple by 2040.

Economy & Business Energy & Environment

Report Nov 6, 2024

Iraq’s 2024 budget: Not what it appears when it first meets the eye

By Ahmed Tabaqchali

Iraq’s budget update seems straightforward but holds hidden complexities. A closer look uncovers discrepancies between appearances and realities, offering insights into Iraq’s fiscal strategy and the structural challenges shaping its economic future.

Economy & Business Iraq

MENASource Feb 21, 2023

Iraq needs to address the economy’s structural imbalances to halt the dinar’s volatility

By Ahmed Tabaqchali

The Iraqi government and the Central Bank of Iraq introduced a series of measures to create domestic demand for the Iraqi dinar and to accelerate the adoption of banking in the economy.

Economy & Business Iraq

The Iraq Initiative provides transatlantic and regional policy makers with unique perspectives and analysis on the ongoing challenges and opportunities facing Iraq as the country tries to build an inclusive political system, attract economic investment, and encourage a vibrant civil society.

learn more

The post Kurdistan’s share of the 2024 Iraqi budget: More than meets the eye appeared first on Atlantic Council.

The successes of the past twenty-five years are undeniable—since 2000, poverty has been cut in half and global gross domestic product (GDP) growth has more than tripled. However, the failures are real as well. The internet, for all the incredible ways it has reshaped trade and innovation, has also fueled long-simmering divisions within countries.

The world is searching for a new “Wright Brothers moment”—a transformational invention that not only enhances productivity but simultaneously inspires people to imagine what comes next. The internet made us look down at our phones; the Wright Brothers made us look up to the sky.

The question is, will the United States and its allies be able to reap the benefits of this century’s Wright Brothers moment? It will likely depend on the economics. From 1900 to 1925, the pound sterling lost its global reserve currency status, industrialization fueled the greatest period of globalization the world had known, and the United States emerged as an economic superpower.

Fast forward to 2025 and the United States has the strongest gross domestic product (GDP) growth of any advanced economy, its startups set the standards across the world, and its geopolitical rivals, including China, have shown since the COVID-19 pandemic that they are not, in fact, ten feet tall.

But the difference between success and failure will be decided in unexpected places. Below are five pressing questions about the global economy in the year ahead. The answers to each of these questions will help determine whether the next twenty-five years mark a supercharged quarter century or push the United States off its economic flight path. 

1. Will Trump try to fire the Federal Reserve chair?

For all the concerns about the future of the US dollar, one of the only real near-term threats would come from a lack of confidence in the Federal Reserve’s independence. What could trigger such a crisis? Check out our breakdown of how Group of Twenty (G20) countries handle the dismissal of their central bank chiefs: 

The good news is that President-elect Donald Trump has said he isn’t going to try to fire Federal Reserve Chair Jerome Powell before his term is up in 2026. The bad news is that he might be able to do it if he changes his mind. The closest the United States has come to testing the idea is probably President Lyndon Johnson asking his Justice Department if he could fire then Federal Reserve Chair William McChesney Martin in 1965.

If the US president proposes this idea, then expect markets to send a ferocious signal not to cross that line. A more likely outcome is that Trump will appoint a new Federal Reserve chair very early in his term, which will cause some confusion but not an outright crisis. 

2. What effects will new US tariffs on China have?

New year, new tariffs? New US tariffs on China are coming—that much is already clear. But to understand how they will impact the US economy, take a deeper look at the tariffs that Trump put on Chinese goods during his first administration. The chart shows how Mexico and Canada have now overtaken China as the top sources of goods covered under the previous Section 301 China tariffs (which included a range of agricultural and manufacturing products). 

If the goal of higher tariffs is friendshoring, or diversifying import sources to trusted partners, the data show that maybe there’s something to this whole strategy—even if it takes time. And it’s not just Mexico and Canada stepping up to replace Chinese exports—the next twenty top US trade partners have nearly all increased their exports to the United States regardless of geography, from South Korea to Germany, and from Vietnam to Brazil.

While the first wave of tariffs had to wait out a pandemic, the next wave may hit China faster and harder, and the rest of the world is ready to take advantage. 

3. Is China’s Belt and Road Initiative back in business?

It certainly looks that way. New data from 2023 show that it was the first year since 2016 that China’s loans to Africa increased compared to the year before. The analysis below shows how China’s economic slowdown, and the COVID-19 pandemic, conspired to curb spending over the past few years.

But now it appears that Chinese leader Xi Jinping is ramping the Belt and Road Initiative back up. And this time, the money that is being spent is in yuan, not US dollars. The focus has shifted to smaller projects and lower financing levels to avoid some of the defaults seen in earlier projects.

The question now is whether Trump tries to counter the Belt and Road Initiative with bilateral US spending or by organizing a Group of Seven (G7) alternative to Beijing. 

4. Will the Global South get more voting power in the IMF?

When the Atlantic Council hosted India’s finance minister, Nirmala Sitharaman, in Marrakesh in 2023, she said that India and the Global South would not accept another unfair arrangement at the Bretton Woods institutions on voting power. This year, her ultimatum will be put to the test. How would the distribution of power change if votes were finally reallocated in the International Monetary Fund? It’s not as clear as you might think: 

The United States would gain votes, as would China, if votes were distributed simply based on a country’s share of global GDP. The real formula is more complicated, but the chart above does help show how things could shift. India would gain a little, and most of the G7 would lose. Of course, Europe losing also costs the United States, as it would have fewer friends at the board.

There is, however, no clear path forward, and it’s hard to see Trump agreeing to anything that benefits China. But don’t expect Indian Prime Minister Narendra Modi or Xi to capitulate either. A new battle of Bretton Woods may be brewing.

5. What’s next for US dollar–backed stablecoins?

In 1971, US Treasury Secretary John Connally famously told a group of European finance ministers that the dollar was “our currency, but your problem.” Europe in particular is going to be thinking about that notion quite a bit in 2025. To understand why, see how dollar stablecoins are increasingly popular around the world: 

Last year was a big year for cryptocurrency; Bitcoin’s price reached one hundred thousand dollars in December, and the industry played a significant role in the US elections. But the focus in 2025 will shift to stablecoins. Today, $170 billion worth of stablecoins are in circulation worldwide, with 98 percent of those pegged to the dollar. 

But as the chart shows, about 80 percent of the flow of US dollar-backed stablecoins happens outside the United States. This is driven mainly by adoption in Europe (with Russia in the lead), in India, and in Southeast Asian countries, such as Vietnam, Singapore, and Indonesia, which are using stablecoins for remittance payments and as a way to access dollars. 

The result is that while the United States finally created a regulatory framework for these assets, other central banks and finance ministers are going to ask the incoming Trump Treasury department exactly what the plan is for all these new dollars floating around in their economies. 

Josh Lipsky is the senior director of the Atlantic Council’s GeoEconomics Center and a former adviser to the International Monetary Fund.

Sophia Busch is an assistant director at the Atlantic Council’s GeoEconomics Center.

Research and data visualizations provided by Jessie Yin, Mrugank Bhusari, and Alisha Chhanganni.

This article is adapted from the GeoEconomics Center’s weekly Guide to the Global Economy newsletter. If you are interested in receiving this newsletter, email
SBusch@atlanticcouncil.org

The post Five big questions about the global economy in 2025 appeared first on Atlantic Council.

The post Tran and CBDC Tracker cited in a report from the Economist on the economic impacts of financial fragmentation appeared first on Atlantic Council.

Yet working with France has sometimes been challenging for US officials. Where Washington sees an obvious case for alignment, France will sometimes assert independence. There is a consistent thread from General Charles de Gaulle’s assertive policies to President Emmanuel Macron’s semi-successful push for the EU to embrace strategic autonomy from everyone, including the United States. Macron’s cause célèbre is already getting a second hearing now that President Donald Trump will be returning to the White House.

Understanding how France “does” economic statecraft will be crucial for US and other Western policymakers in the months and years ahead. Therefore, over three months, we have conducted interviews with the relevant teams in Paris, Brussels, and Washington DC, which agreed to meet despite very busy schedules. The goal of this piece is to represent how these teams are organized and how they think about their issues.

Before delving in, it’s worth knowing the basics about France’s place in the global economy.

France produces competitive exports in the sectors in which it is specialized: aeronautics, beverages, and cosmetics. In these sectors, France is among the top five countries in terms of quality ranking, indicating high non-cost competitiveness. However, these export sectors make up less than 20 percent of France’s export revenues. The rest of France’s exports (mainly in electrical equipment, machinery, vehicles, plastics, and pharmaceuticals) have more average quality rankings and these have deteriorated over time. This makes French exports sensitive to cost competitiveness—which has been a problem in recent decades because of high unit labor costs. President François Hollande’s Tax Credits for Competitiveness and Jobs (CICE), as well as other steps taken toward flexibility in the labor market by Macron, have gone some way in addressing this. Even without the scale advantages of the US market, the French start-up ecosystem has produced unicorns like BlaBlaCar in the sharing economy and Mistral.AI—the highest-valued artificial intelligence (AI) firm based outside the San Francisco Bay area.

Still, France’s trade deficit, which has grown since the mid-2000s, remains a persistent concern for French voters.

France’s manufacturing sector relies heavily on foreign inputs. The French Treasury estimated that 40 percent of manufacturing inputs were imported in 2020, albeit predominantly from other European countries. The energy sector is the most dependent on non-EU inputs, relying on crude oil imports. The textile industry has seen the largest growth in import dependency over the past two decades, with more than 60 percent of inputs imported. The textile sector is the most dependent on Chinese inputs, followed by the electronics and transport sectors.

Meanwhile, high social spending—the legacy of COVID-19—has left France with a heavy debt pile. Paris has struggled to bring down deficits even as COVID-related and other price shields brought in at the beginning of Russia’s full-scale invasion of Ukraine have been phased out. The short-lived Michael Barnier government has already fallen before passing a budget for 2025. The successor François Bayrou government will probably succeed in passing a late budget, but with little margin for savings. Along with being costly, France’s debt can affect its credibility in EU debates. Yet it would be a big mistake to underestimate French influence in Brussels. Our journey through French economic statecraft will take us there first.

France and EU economic statecraft

Through its membership in the EU, France participates fully in the Customs Union and the border-free Schengen Area. Any targeted sanction—such as an asset freeze or a travel ban—must therefore be applied in the whole EU, though implementation is carried out by national immigration and customs authorities. Even for a well-established EU tool like sanctions, the fact that they belong to foreign policy means that member state unanimity is required for renewal every six months. Teams at the European External Action Service (EEAS) decide whom to sanction—and national diplomats on loan are heavily present there. France’s permanentrepresentation tries to get involved early to avoid the leak of draft proposals that are difficult for France. Trade and regulation policy, on the other hand, tends to rely on qualified majority voting (QMV) in the Council of the EU. A timely example of this is France’s current effort to slow or block the ratification of the EU-Mercosur trade agreement by working with other member states with strong agricultural sectors.

Russia’s full-scale invasion of Ukraine forced France and the EU to beef up their activities in most of these clusters, while causing few if any recriminations regarding who’s in charge. The French interministerial process run by the General Secretariat for European Affairs(SGAE) in Paris and the permanent representation in Brussels have allowed France to bring a quick end to the rare initiatives that might have disproportionately affected the French economy, such as sanctioning Rosatom.

Perhaps counterintuitively, tensions have arisen more frequently in abstract discussions about which tools the EU should equip itself with next. The division of labor between the EU and national powers becomes muddier as newer tools are explored. National security remains the preserve of member states and is not as well defined in the treaties of the European Union as it is in the General Agreement on Tariffs and Trade. On the other hand, economic statecraft touches on trade, regulation, and competition rules, which are the EU’s prerogative and areas in which the European Commission has the sole power to initiate legislation. The following chart shows there is a sliding scale of policy clusters. These are not exhaustive, nor is their position set in stone. However, the chart provides a fairly accurate map of where Paris’s preferred mix of pooled sovereignty and national competence currently lies for each cluster.

There has been a trend of President Ursula von der Leyen’s European Commission publishing turnkey compromises on newer areas of economic statecraft, such as outbound investment screening. The January 2024 white paper on outbound investment conspicuously avoids mentioning “national security” and instead refer to risks to “common EU security.” Paris argues that trying to replicate instruments born in the US approach to national security is counterproductive and that respecting the committee-based process for using existing tools and elaborating new ones will lead to better outcomes.

The Council of the EU hosts myriad committees focusing on thematic areas pertaining to economic statecraft (customs, trade, financial regulation, and merger control), each with its own communities of experts and preferences. France is represented in each one and is confident in its abilities to shepherd discussions. The SGAE plays a key role in coordinating between ministries so that the French positions on different committees are compatible. The French Treasury (DG Trésor) and its trade and investment policy office (MULTICOM) are competent authorities for investment screening in France, making them an important knowledge hub for where France’s interest lies in these discussions.

In Paris’s view, allowing time for comitology has two other advantages. It enables member states to find the right balance between the ability to intervene and block an investment when necessary and creating rules to prevent the profligate use of new tools by some capitals. It also allows the EU to devise economic statecraft tools in a way that is coherent with its internal rules. For example, the Carbon Border Adjustment Mechanism will use the Emissions Trading System’s method to calculate adjustments due on third-country goods. A new challenge will be making inbound investment screening more explicitly compatible with competition rules on mergers.

Paris is focusing carefully on how the European Commission is preparing to divvy up the economic statecraft brief over the 2024–2029 term. The clearest owner of the issue, alongside von der Leyen herself, will be four-time Commissioner Maros Sefcovic, whose portfolio now includes trade and economic security. In his mission letter, he is also instructed to lead work on a New Economic Security Doctrine for the EU.

The inner workings of French institutions in shaping economic statecraft

The French Treasury and its MULTICOM office fit within a wider ecosystem feeding into French economic statecraft policy. The SECFIN office of the French Treasury is the most competent authority on sanctions and controls. It runs regular dialogues with the Office of Foreign Assets Control and the Bank for International Settlements and oversees the work of the customs service (la douane). The Directorate General for Firms (DG Entreprises) is a separate directorate within the Economics Ministry that helps the private sector with compliance. A subdivision created in the 2019 reform of French economic security policy, the Strategic Information and Economic Security Service (SISSE) also fulfils an economic intelligence role and can contact and support firms of strategic importance which it believes are being targeted by foreign economic statecraft or simply by investors the French government deems inappropriate. Ever since a blocking law was passed in 1968, French firms have needed to seek permission from the French government before transmitting sensitive information to foreign governments or justice systems. The 2019 reform makes SISSE the point of contact for seeking this authorization.

Paris argues that its rules on inbound investment are clear, as are its demands when it intervenes in a transaction. These demands usually include key elements like research and development and production staying in France. US investors certainly don’t seem to fear politically motivated or arbitrary interventions. France usually tops the list for US foreign direct investment into Europe and US firms’ direct investment position in France was in excess of $100 billion in 2023. This doesn’t make the investment screening mechanisms totally immune to political pressure, but this tends to be exercised for firms with high symbolic but low strategic value, as in the recent case of Sanofi’s attempt to spin off its Doliprane painkiller brand.

While it sits in the imposing Economics and Finance Ministry, which is sometimes described as a fortress, the French Treasury is comfortable with Brussels’s process and pooling sovereignty because its areas of competency are already quite Europeanized. But it’s important to understand which other ministries have an economic statecraft role.

Though it is not the hub of economic statecraft thinking, the Ministry for European and Foreign Affairs plays an important role. The main reason is that its diplomats are likely to be present when policy deals are struck at a political level, be it Joint Comprehensive Plan of Action (JCPOA) negotiations in Vienna or more recent Group of Seven (G7) meetings focused on responding to Russia’s aggression against Ukraine. The need for in-house coverage is mainly fulfilled by the globalization directorate, which has several teams working on economic diplomacy, including a deputy director for sanctions, economic norms, and the fight against corruption. But because of the EU components, the deputy director for external relations of the European Union and the deputy director for EU and international economic law will also be heavily involved in interministerial discussions before every new EU sanctions package or white paper on economic statecraft.

Collaboration between the foreign and economics ministries works well, and it is useful to meet and discuss matters with both. The Foreign Ministry is more comfortable than the Economics Ministry in owning France’s independent streak and justifying the need to stand up to the United States on occasion. The historical purpose of the office of the deputy director for sanctions was to deal with the spillover effects from US economic statecraft, as demonstrated by the 1990s blocking regulation meant to protect EU firms investing in Cuba or setting up the Instrument in Support of Trade Exchanges to maintain some economic relations with Iran when the United States left the JCPOA in 2018, leaving French banks and energy firms particularly exposed. Today, the Foreign Ministry’s sanctions team thinks of itself as the knowledge hub on sanctions complications—which can also mean anticipating unintended consequences from European sanctions. Foreign Ministry teams are also keen to remind interlocutors that none of the tools built for economic statecraft are targeted only at China and will be careful to make sure this remains the case in European policy.

Not all policy issues are coordinated through the SGAE. The same ministries can also be summoned to coordinate through the Defense and National Security Council Secretariat (SGDSN), which prepares Defense Councils. In addition to the sliding scale of instruments—some more national than others—France also guards some sectors from European policy. Everything related to civil nuclear contracts is kept quite separate from the EU, as are military export contracts. This may be part of the reason why France is cautious about outbound investment screening, as some of these contracts come with local production partnerships (offsets or mesures de compensation).

The 2019 reform also instituted the Economic Security Liaison Committee (COLISE) meetings, which include ministries that weren’t historically alert to these risks, such as the Education and Research Ministries. The public financial institutions that form France’s robust infrastructure for positive economic statecraft are not officially part of COLISE meetings but can be invited. The French Development Agency (AFD) and its development finance subsidiary PROPARCO are powerful instruments, but their status as a bank makes them quite independent from political priorities in Paris. The Public Investment Bank (Bpifrance), a joint venture between the state investment bank and previous iterations of strategic investment funds, can be asked to make domestic investments—including when the French government has blocked an inbound investment.

All of these ministries and coordination bodies are meant to answer to the top. But even in France’s presidential system, the prime minister can sometimes assert themself. There have been no obvious divergences while Macron has had prime ministers from his own or allied parties. Still, the SGAE explicitly sits under the prime minister, so a more assertive prime minister from a political party different from the president’s can heavily influence what position France takes on EU policy. Still, the presidency will always remain heavily involved through the president’s own presence at European Councils and at G7 summits. Macron’s diplomatic adviser Emmanuel Bonne was on the now notorious WhatsApp group used to finalize the first salvo of G7+ sanctions in February 2022, as was von der Leyen’s Chief of Staff Björn Seibert.

Putting collaboration on a more sustainable footing

If our interlocutors in Paris would like US readers to take one message on board, it would be that they should have more faith in the EU’s way of doing things. Provided there is enough time for comitology, they say, EU economic statecraft can have formidable effects. The often-cited Anti-Coercion Instrument—which is meant to allow the EU to respond as one bloc when coercion is being exercised on one member state—was first introduced in 2018 and work was stepped up in 2021 when China started piling economic pressure on Lithuania. The instrument entered into force in December 2023. This might seem slow to Washington, but this is the price to pay for a policy with which all member states are comfortable. This, in turn, relies on two crucial elements. First, new tools must be country agnostic. Setting up China-specific instruments will alienate key member states and—even if the instruments are set up—will require starting all the comitology from scratch if a new threat emerges from a country other than China. Second, there needs to be trust that there are sufficient guidelines to prevent a minority of member states from free riding on others’ efforts.

The EU’s fourteenth sanctions package against Russia from June 2024 provides a more recent example of just how effective EU measures can be when a consensus is finally reached. In this case, the EU gave itself the legal basis for sanctioning Chinese firms with extensive activities in Russia. While the EU didn’t even designate any bank, the news drove many Chinese banks out and commercial interest rates in Russia up. Paris would argue that this was worth the wait.

Attempts by Washington to hasten progress haven’t necessarily been productive. The clearest example concerns outbound investment screening. Von der Leyen’s endorsement of this approach during her March 2023 US visit, and the last-minute addition of a white paper on the topic to the January 2024 package of papers on economic statecraft, has generated rumors about pressure from the White House and poisoned the committee-based discussions on the topic. Going forward, the fact that Macron’s former Europe adviser Alexandre Adam now serves as von der Leyen’s deputy chief of staff should avoid a repeat of this kind of hiccup.

There is a conundrum for the three EU member states that are also part of the G7, including France. Washington sometimes takes the shortcut of assuming G7 statements commit the EU to a particular course of action, when the reality is that comitology will need to take place anyway. There is also a lesson here for the EU institutions, which tend to be quiet in G7 working groups when they should instead provide feedback on what is feasible for the EU and how long it will take.

In a way, the US-EU Trade and Technology Council (TTC) was designed to build trust between technical teams so that this type of hurdle would be less of a problem. It isn’t clear whether the format will survive under Trump. In any case, imposing solutions on Europe is bound to backfire and to return knee-jerk criticism of extraterritorial justice. Instead, experts are capable of having a nuanced debate and can see how EU law also carries global implications, though without the same means of enforcement.

As one experienced practitioner told us, “If Europe is both taken for granted and collateral damage of US economic statecraft, this makes it harder for us to push back on extremist parties’ arguments against any sort of restrictive measures.”

Strategic empathy is therefore crucial. This is especially true as our interlocutors tended to land on the same parting thoughts that any US policymaker might share at the end of a similar discussion, such as the need for a doctrine of economic statecraft.

Charles Lichfield is the deputy director and C. Boyden Gray senior fellow of the Atlantic Council’s GeoEconomics Center.

The report is part of a year-long series on economic statecraft across the G7 and China supported in part by a grant from MITRE.

At the intersection of economics, finance, and foreign policy, the GeoEconomics Center is a translation hub with the goal of helping shape a better global economic future.

Learn more

The post Decoding French economic statecraft appeared first on Atlantic Council.

The post Nikoladze quoted by Handelsblatt on Georgia’s trade with Russia, China, and Iran appeared first on Atlantic Council.

The post Bhusari and McDowell quoted by Voice of America on BRICS and US dollar appeared first on Atlantic Council.

The post Dollar Dominance Monitor cited by the Wall Street Journal on the dollar’s international use appeared first on Atlantic Council.

The post Dollar Dominance Monitor cited by Reuters on the BRICS-led effort to reduce reliance on the dollar appeared first on Atlantic Council.

The post Dollar Dominance Monitor cited by Politico on the dollar’s role as the leading reserve currency appeared first on Atlantic Council.

The answer, it turned out, was more benign than what had been feared at the time. Like its predecessors, the Trump administration quickly realized that the two institutions provided the United States with financial leverage to pursue its global objectives, including by assisting friendly countries that would otherwise depend mostly on Chinese lenders for support.

As a result, the collaboration between the two institutions and the Trump administration mostly followed established processes, including in the Group of Seven (G7) and Group of Twenty (G20), where US priorities were quietly negotiated with staff and other shareholders. The administration also lobbied Congress to keep up US financial contributions to the institutions, both for the World Bank’s regular International Development Association replenishment (subsidizing loans to poor countries) and the IMF’s New Arrangements to Borrow (which added to the IMF’s lending capacity on top of its permanent resources).

As Trump prepares to return to office, it would be tempting to expect a similar outcome, given the market-friendly appointments for economic positions so far (which calmed down speculation about a US withdrawal from the Bretton Woods institutions as proposed by the Heritage Foundation). Compared to 2016, however, the geopolitical rivalry between the United States, China, and other autocracies has become more intense. Trump has already announced plans for new tariffs on China, and Beijing has halted exports of some rare minerals in retaliation to US chip restrictions. As a result, the next US-China trade dispute could be much larger in scope. If it spilled over into areas under the mandate of the Bretton Woods twins, then the United States could push them, especially the IMF, to provide more explicit support for its positions.

One of the key planks of a future Trump administration could be an attempt to boost domestic exports by lowering the external value of the dollar. This could affect all countries with a large current account surplus (such as Germany and South Korea), but US policy is likely to focus predominantly on Beijing’s recent manufacturing offensive. The IMF could face pressure to speak out against China’s large current account surplus, providing intellectual support for the country being designated as a “currency manipulator” by the US Treasury Department, which could lead to the imposition of retaliatory tariffs.

Going even further, the United States could also nudge the IMF to declare China a currency manipulator itself, which would put China’s trade and exchange rate pressures under a multilateral spotlight. Per its “Integrated Surveillance Decision,” the IMF would have to find that China was conducting its exchange rate policy with the sole objective of securing a “fundamental exchange rate misalignment” for the purpose of an increase in net exports. This would be a high bar to clear given the views expressed in the IMF’s 2024 External Sector Report and a recent blog post by a group of senior directors that blamed domestic policies on both sides of the Pacific Ocean for the increase in global current account imbalances.

Moreover, the United States would not find many allies on this issue among the IMF’s other shareholders, let alone emerging markets, which could lead to a divisive standoff in the otherwise consensus-oriented institution. In 2007, for example, an earlier initiative by the George W. Bush administration to label China as a currency manipulator backfired when Beijing refused to publish its annual IMF consultations for two years—until the issue was resolved by the global financial crisis.

A similar shift in intensity could also take place regarding the two institutions’ lending activities. The United States under Trump did not lean particularly heavily on the IMF to lend to specific countries, even when it came to Argentina. That was because, at first, there was broad support within the IMF for the reformist Macri government, and when economic developments turned sour, the United States was not the only country reluctant to pull the plug on an ongoing program.

Going forward, however, the next Trump White House could push the IMF more actively to provide Argentine President Javier Milei, a Trump political ally, with additional foreign exchange reserves to prevent a run on the peso in case capital controls are lifted. Other leaders the administration views favorably might hope for similar support in the event of economic difficulties. The danger here is clear: unless the fund’s management and other shareholders were to resist politically motivated loans, the risks to the IMF’s balance sheet could significantly increase. Another large, failed loan to Argentina, for example, could trigger questions about the official reserve status of claims on the IMF, which is at the core of its financial business model.

On the other hand, the new administration could prove more allergic than before to helping developing countries with large outstanding loans to China, pushing more aggressively for debt restructurings before new loans are approved. Getting China to participate more actively in debt restructuring cases would indeed be beneficial for most countries, but the Trump administration should be clear-eyed about the nature of the challenge. Barring financial support from, and stepped-up trade opportunities with, the United States and other countries, few countries would go into arrears to Chinese lenders, which might be the only way to convince Beijing to provide development loans at truly concessional terms.

Both the IMF and World Bank are also likely to face greater scrutiny for their climate-related lending activities. While a wholesale reversal of existing policies may not be high enough on the new administration’s agenda, the potential choice of new personnel at the heads of both institutions could have significant implications. For example, the Trump administration could appoint a new World Bank president, which has traditionally been a US prerogative. However, it could face significant pushback if it were to remove Ajay Banga, the highly effective incumbent, in favor of a candidate modeled on his immediate predecessor, David Malpass.

At the IMF, the United States traditionally chooses a candidate for the number two position but cannot impose a change unless Kristalina Georgieva, its managing director, agrees. Given the unease over the IMF’s move into climate and development finance even within the Biden administration, this could become an early point of friction. The new administration will have a lever to request some changes in the institution, as it has to shepherd the ratification of the IMF’s 2023 capital (or “quota”) increase through Congress (which already missed the original deadline of November 15, 2024). Amid the chatter in Washington of a radical overhaul of the US government, it may even be possible that the gentlemen’s agreement between the United States and Europe of not interfering with each other’s personnel choices (which has been broken before) is up for the chopping block.

Martin Mühleisen is a nonresident senior fellow at the Atlantic Council’s GeoEconomics Center and a former IMF official with decades of experience in economic crisis management and financial diplomacy.

The post The IMF and World Bank did well under the first Trump administration. Will they again? appeared first on Atlantic Council.

The post Dollar Dominance Monitor cited by Axios on the dollar’s share of global reserves appeared first on Atlantic Council.

The post Dollar Dominance Monitor cited by AP News on the dollar’s outlook as the primary global reserve currency appeared first on Atlantic Council.

The United States has diversified its imports away from China for low value-added goods such as bedding, mattresses, and furniture. But diversification is proving far harder for higher value-added goods. 

To understand why the incoming Trump administration is going to face a dilemma on how to execute its new tariffs, see our analysis on the top goods the United States is importing from China:

Smartphones, computers, lithium-ion batteries, toys, and video game consoles together made up 27 percent of US goods imports from China in 2023. US reliance on China for these goods has hardly budged since 2017. In fact, China’s share in US battery imports has actually increased in that time. 

And even if there was more diversification, it wouldn’t solve the problem of US import reliance on China. Diversifying imports away from China doesn’t necessarily translate to lower exposure to Chinese industries. Vietnam, for example, has been among the largest benefactors of US attempts to diversify its imports. Vietnam’s share of US imports has risen steadily across several sectors where China’s share has decreased.

In response to the 2018 trade war, Chinese manufacturers moved factories to Vietnam, where they added some value to products before exporting to the United States. A strong correlation between Vietnam’s exports to the United States and Vietnam’s imports from China suggests these factories remain deeply dependent on Chinese intermediate goods and supply chains. 

Analysts have also raised concerns that some Chinese goods are first shipped to China, designated as Vietnamese-origin exports to avoid US tariffs—despite no value being added in the country—and then exported to the United States. The US Department of Commerce concluded this was the case for solar panels in 2023 before imposing new tariffs on companies engaged in that trade. 

At the same time, Chinese exporters are not as dependent on the US market for these goods. The global market for electronics produced in China is somewhat diversified:

Across-the-board tariffs that would include these goods may impact US consumers more in the short term through price increases than Chinese producers – especially if China extends support to its own companies.

There is a reason why the United States has not put tariffs on these goods already. In 2018, the Trump administration prioritized tariffs on intermediate goods to avoid direct impact on consumers. President Trump himself said in 2019 that tariffs on electronics were going to be delayed for the holiday season: “We’re doing this for the Christmas season, in case any of these tariffs would have an impact on US consumers.” The tariffs were never implemented.

What’s changed between now and 2019? Inflation is more of a concern than it was then. In fact, it is one of the reasons Trump was elected. While these five goods are insignificant within the US Consumer Price Index since consumers do not purchase phones or laptops regularly, the goods have very high public salience. The media will understandably focus on price changes on iPhones, for example. This makes it even more difficult to implement any significant new tariffs on these products. 

That doesn’t mean there won’t be new tariffs on China—the question is which products will be the target. Think about electric vehicles (EV). President Biden put 100 percent tariffs on Chinese EVs. President Trump could add another 30 percent penalty—but only two percent of all US EV imports are from China. So while such a tariff may generate headlines, it would not translate into a meaningful shift in the trade relationship.

The bottom line is that while the incoming Trump administration is serious about tariffs, actually enacting them is going to be much more complicated given the current dynamics in the global economy. 

Josh Lipsky is the senior director of the Atlantic Council GeoEconomics Center and a former adviser to the International Monetary Fund.

Mrugank Bhusari is assistant director at the Atlantic Council GeoEconomics Center focusing on trade and the international role of the dollar.

This post is adapted from the GeoEconomics Center’s weekly Guide to the Global Economy newsletter. If you are interested in getting the newsletter, email SBusch@atlanticcouncil.org

The post The United States has trade leverage with China, but not as much as Washington thinks appeared first on Atlantic Council.

The post China Pathfinder report cited in the US-China Economic and Security Review Commission’s annual report on China’s property sector crisis appeared first on Atlantic Council.

The post Front page event with Under Secretary Jay Shambaugh featured in the Washington Post on China’s economy appeared first on Atlantic Council.

The Economic and Social Costs of the Gaza War

“We’ve had the loss of lives, injuries, and the cessation of economic activity in general in Gaza—as well as the demolition of infrastructure,” economist Perrihan al-Riffai said on Tuesday, October 22^nd, during the launch of her new report, authored in partnership with the Atlantic Council’s empowerME Initiative and GeoEconomics Center.  

The new report, “The economic and social costs of the Gaza War,” uses data to navigate the war’s toll, not only upon the “epicenter countries” directly involved in the conflict but also the broader Middle East. The socioeconomic cost of the war has been overwhelming—but not entirely in the ways economists, at the beginning of the war last October, initially thought.  

Al-Riffai noted that the war had a negative effect on supply chains—especially vis-a-vis Houthi attacks in the Red Sea—but that the increased costs of the diversion had not translated into the expected increase in prices for consumers. Another surprise was the conflict’s apparent lack of immediate impact on oil and energy prices.  

Other socioeconomic impacts, though, were predictably devastating. The war has “helped exacerbate Egypt’s already challenging foreign exchange situation and current account difficulties,” said al-Riffai. Israel faces surging inflation, debt, and military spending, with its labor market hemmed in by militarization. Moreover, “the longer the conflict goes on and the more intense it becomes,” there is potential that risk-shy investors could turn away from investment in the broader Middle East.  

As for the human toll, migration and displacement have shot up. Palestinian refugees fleeing to nearby countries already facing economic challenges, like Jordan and Lebanon, may unfortunately represent “an extra pressure point on public utilities, including the social sector, health, and education. Unfortunately, what ends up happening is the refugees end up suffering in addition to the host country’s citizens.”  

Reshaping Egypt’s fiscal policy with Finance Minister Ahmed Kouchouk

“We still need to keep the course of reforms and to keep monitoring things, but on the fiscal side, we’re seeing good performance,” said Egyptian Finance Minister Ahmed Kouchouk, speaking at an Atlantic Council event on Wednesday, October 23^rd, discussing the future of Egypt’s fiscal policy. His Excellency discussed Egypt’s prosperous relationship with the IMF and spoke on the ongoing program which aims to address fiscal imbalances accrued during the Covid-19 pandemic, as well as public spending at large. 

Discussing current challenges to the Egyptian economy, Minister Kouchouk spoke on the work that the Egyptian Central Bank is doing to bring inflation back to its 2025 target, as well as the importance of social safety programs for Egyptians impacted by rising costs – including a conditional cash transfer program developed in collaboration with the World Bank.  

Minister Kouchouk also noted that Egypt has made climate and sustainability a priority in economic planning. H.E.’s participation in the Coalition of Finance Ministers for Climate Action has allowed Egypt to collaborate with other nations and adopt new strategies to meet the Sustainable Development Goals. Further, Egypt has become the first issuer of green bonds in the region. “We are streamlining climate in our work, in our planning, in the fiscal risk statement.”   

Saudi Arabia’s economic outlook with Minister Faisal F. Alibrahim

“The idea of Vision 2030 was based on optimism for the future,” said H.E. Faisal F. Alibrahim, Saudi Arabian Minister of Economy and Planning on Thursday, October 24^th, at the Atlantic Council. The Minister spoke on the Kingdom’s primary economic goals – namely, to diversify the economy to bring in different sources of growth and to elevate the role of private businesses. “Ultimately, the objective is for the private sector to grow.  We have set an ambitious target of 65% for the private sector, and we’re moving slowly in that direction.” 

As the Saudi economy moves away from oil dependency, the Minister dsicussed the investment diversification effort the Kingdom made in various industries under Saudi Vision 2030, including in technology, artificial intelligence, and tourism. The government has also made sustainability a key priority and has invested heavily in electric vehicles, hydrocarbon energy, solar energy, and carbon removal technology. The Minister stressed the government’s strong commitment to sustainability and the need for the Kingdom to take a regional leadership role on this issue: “A stronger Saudi economy is good for the region.”  

“The heart of all of this is technology and innovation,” said Minister Alibrahim. “Diversification is essentially just doing what you don’t know how to do.” 

Egypt’s sustainable investment and trade growth, with Minister Hassan El Khatib

“I want stable policies, I want predictable policies, and I want to make sure that this location is competitive now and for the next twenty years,” said H.E. Hassan El Khatib, Egypt’s minister of investment and foreign trade. “Egypt has a major advantage and a great opportunity today, especially with the supply chain shift, with onshoring, with our abundance of quality labor.”

On Friday, October 25th, the minister joined the Atlantic Council at the International Monetary Fund to discuss Egypt’s sustainable investment and trade growth with empowerME Initiative Director Racha Helwa. He highlighted Egypt’s empowerment of its private sector and its planned shift away from government-led economic growth: By 2030, H.E. said, the Egyptian government aims for the private sector to contribute 75 percent of investments. These efforts are part of Egypt’s commitment to building an attractive business environment, securing more foreign direct investment, and streamlining existing trade and tax policies.

For example, the minister underscored the need to make the logistics of trade simple and fast, not only by reducing non-tariff barriers but also by pursuing digitization. “Trade is about the ease of getting goods in and out,” His Excellency said. “We want to cut the time taken to release goods by 30 to 50 percent.” Egypt’s trade prospects stand out in a troubled region given the country’s excellent strategic location, clear policies, renewable energy resources, abundant high-quality labor, and stable approach to regional challenges.

Kate Springs and Leila Ouhri are Young Global Professionals in the Atlantic Council’s Middle East Programs.

empowerME

empowerME at the Atlantic Council’s Rafik Hariri Center for the Middle East is shaping solutions to empower entrepreneurs, women, and youth and building coalitions of public and private partnerships to drive regional economic integration, prosperity, and job creation.

Explore the initiative

The post MENA’s economic outlook for 2025 and beyond from the Atlantic Council’s IMF/World Bank Week  appeared first on Atlantic Council.

Iraq’s recent budget update is far more complex than it appears on the surface. In June, the Iraqi Council of Representatives (CoR) approved the country’s 2024 expenditure and revenue tables, a necessary adjustment for the unique three-year budget approach initiated in 2023. Though the three-year budget approach was intended to serve as a forward-looking financial framework for 2023-2025, in practice it has amounted to a single-year budget repeated annually, rather than a fully integrated multi-year forecast. As a result, the 2024 tables reveal projected spending of 211.9 trillion Iraqi dinars (about $162.9 billion), anticipated revenues of 147.8 trillion dinars (around $123.2 billion), and a deficit of 64.0 trillion dinars (roughly $49.3 billion). These figures mark a slight year-over-year increase in both expenditures and revenues while maintaining a nearly unchanged deficit—though this consistency may be misleading.

This report authored by Ahmed Tabaqchali, an investment strategist with extensive experience in Middle Eastern markets, delves beneath the surface of Iraq’s budget framework, uncovering how the 2024 tables both mirror and diverge from their 2023 counterparts. In essence, the budget’s three-part examination sheds light on a disconnect between the projected fiscal stability and the structural challenges in Iraq’s budgetary approach. The first part of the analysis highlights visible contrasts between the two years, while the second scrutinizes underlying realities that reveal why the numbers may not tell the whole story. Finally, the report explores the implications for Iraq’s fiscal future and asks what adjustments might be necessary for a more reliable, sustainable budget path.

This nuanced look reveals how Iraq’s evolving budget strategy reflects broader challenges in fiscal governance and economic planning.

Related content

MENASource Oct 2, 2024

After Operation Inherent Resolve: How to not mess up US-Iraq security relations again

By C. Anthony Pfaff

The importance of broadening US relations with Iraq beyond counter-terror operations cannot be overstated.

Conflict Defense Policy

MENASource Jul 11, 2024

Investing in Iraq’s education will contribute to its revival

By Honar Issa

Investing in Iraq’s education system offers a unique opportunity for the United States to not only support a key ally but also address the root causes of instability in the region.

Civil Society Conflict

Report Sep 26, 2022

Amman-Baghdad-Cairo (ABC) Agreement: A new path for economic integration

By Racha Helwa, Barik Schuber, and Ibrahim Saif

Since 2019, Egypt, Iraq, and Jordan have held multiple summit meetings to discuss trilateral agreements to formalize and deepen economic integration. By cooperating among themselves, the three countries can represent a united political and economic front. This report explores the potential benefits and pitfalls to avoid from the perspective of each country: Egypt, Jordan, Iraq.

Economy & Business Inclusive Growth

The Iraq Initiative provides transatlantic and regional policy makers with unique perspectives and analysis on the ongoing challenges and opportunities facing Iraq as the country tries to build an inclusive political system, attract economic investment, and encourage a vibrant civil society.

learn more

The post Iraq’s 2024 budget: Not what it appears when it first meets the eye appeared first on Atlantic Council.

It is a mistake for the West to dismiss the power of symbolism and narratives in the geopolitical competition for global influence. The BRICS summit has also produced noteworthy results that the international community should be aware of.

First, Vladimir Putin chaired a successful summit involving thirty-six countries, most of which were represented by heads of state. In doing so, the Russian president showed that he has not been isolated in the international arena by the West following his invasion of Ukraine. Instead, he has deepened relationships with Global South countries through BRICS and other initiatives such as riding the anti-colonial wave to make headways in western Africa. Equally importantly, President Xi Jinping and Prime Minister Narendra Modi met on the sidelines of the summit. They did so mere days after announcing a pact to resolve their border conflicts, which have been a major irritant in their bilateral relationship. Their meeting helped raise the stature of the BRICS summit as a venue where important political discourse can take place.

Last but not least, with many countries reportedly wanting to join, BRICS has invited 13 thirteen nations to be partner countries-they will continue discussions with a view to formal membership. The list of partner countries—confirmed by several senior officials, but not officially specified in the Kazan Declaration—includes Algeria, Belarus, Bolivia, Cuba, Indonesia, Kazakhstan, Malaysia, Nigeria, Thailand, Turkey, Vietnam, Uganda, and Uzbekistan. It is unclear which of these countries will eventually decide to become formal members. Saudi Arabia, for example, was invited to join last year but has not yet decided, though its officials have attended BRICS meetings since then. The inclusion of priority countries for the West, such as Turkey (a NATO member) and four important ASEAN countries, should concern policymakers. Many developing countries have found BRICS a useful forum for a variety of reasons, including diversifying international relationships and expanding trade opportunities.

The Kazan Declaration, released at the end of the summit, covers a wide range of issues. The Declaration avoids any direct mention of the United States, hostile or otherwise. Some Western analysts had raised that doing so could make moderate members like India and Brazil uncomfortable, especially given the anti-Western tilt of the group’s expanded membership. The Declaration focuses on promoting multipolarity and a more representative and fairer international system. These goals remain the common denominator attracting many countries to BRICS.

The Declaration supports initiatives and groups developed to coordinate and promote the views of BRICS members and countries in the Global South in international fora, including the United Nations (UN) and the Group of Twenty. These groupings cover issues from sustainable development to climate finance, and call for settling the conflicts in Gaza and Ukraine.

In particular, BRICS will intensify ongoing efforts to promote settlements of cross-border trade and investment transactions in local currencies by establishing BRICS Clear as an independent cross-border settlement and depository infrastructure. Doing so would help facilitate the use of local currencies. It will also launch the BRICS Interbank Cooperation Mechanism to promote innovative financial practices, including financing in local currencies. Many developing countries are interested in using local currencies more frequently given their limited access to US dollar funding.

The group’s decision to form an informal consultative framework on World Trade Organization (WTO) issues to engage more actively in the debates about reforming the WTO is also noteworthy. This section of the Declaration includes opposition to the use of unilateral economic sanctions and discriminatory carbon border adjustment mechanisms. Taking advantage of the fact that BRICS members constitute the largest producers of natural resources in the world, the group also pledges to jointly promote its interests throughout the value chains of mineral production against the backdrop of increased demand for critical minerals for the energy transition. The geopolitics of the energy transition could open an opportunity for mineral-rich developing countries to coordinate their mineral policies and join the superpowers in their search for reliable supply chains of critical minerals.

Overall, BRICS has attracted interest from many developing countries—now boasting nine members and thirteen partner countries. The collective share of its members’ population and gross domestic product has surpassed that of the Group of Seven (G7). However, expansion comes at a cost. Building consensus among more diverse members is increasingly complex, and expansion plans could remain a point of contention within the group. For example, Venezuela had reportedly been kept out of the list of partner countries due to Brazil’s objection.

Despite this challenge, key members of BRICS have successfully developed common positions among Global South countries in international fora in recent years. Their joint effort to demand a loss and damages fund at COP28 in Dubai in 2023 is one example. Additionally, BRICS members have collaborated with Global South countries to work for the adoption of the UN mandate in August 2024 to negotiate a UN tax convention, which covers taxation of multinational corporations and wealthy individuals. BRICS countries also consistently promote governance reform of the Bretton Woods Institutions. The more BRICS can develop and articulate common views among Global South countries, the more it can be regarded as the counterpart of the G7 (representing developed countries) at international fora and in the public domain.

Importantly, BRICS’ flagship project—promoting the use of local currencies to settle cross-border trade and investment transactions—is gradually gathering momentum. China, for example, has increased the share of the renminbi when settling its cross-border transactions from 48 percent (surpassing the US dollar) in mid-2023 to more than 50 percent in mid-2024.

In short, BRICS—or BRICS-plus as some observers and officials have referred to the expanded group—is here to stay. Other countries, including Western ones, need to figure out how to deal with it.

Hung Tran is a nonresident senior fellow at the Atlantic Council’s GeoEconomics Center, a former executive managing director at the Institute of International Finance and a former deputy director at the International Monetary Fund.

At the intersection of economics, finance, and foreign policy, the GeoEconomics Center is a translation hub with the goal of helping shape a better global economic future.

Learn more

The post The underestimated implications of the BRICS Summit in Russia appeared first on Atlantic Council.

The post Donovan quoted by The Banker on the divergence in global financial system appeared first on Atlantic Council.

The post Front Page event with President of the European Central Bank Christine Lagarde featured in Axios on inflation risks in the services sector appeared first on Atlantic Council.

The post Lipsky quoted in Axios on the prospects for fiscal tightening in the US appeared first on Atlantic Council.

The post Front Page event with President of the European Central Bank Christine Lagarde cited in Reuters on rate cuts in Europe appeared first on Atlantic Council.

The post Front Page event with President of the European Central Bank Christine Lagarde featured in Bloomberg on slowing inflation appeared first on Atlantic Council.

The post Front Page event with President of the European Central Bank Christine Lagarde featured in Agence France Presse on the rise of emerging currencies appeared first on Atlantic Council.

The post McDowell cited in Politico on how central bankers are managing sanctions risks appeared first on Atlantic Council.

The post Mühleisen quoted in the Wall Street Journal on China’s trade strategy and the IMF appeared first on Atlantic Council.

The post Event with Treasury Under Secretary Shambaugh featured in the Wall Street Journal on China and the IMF appeared first on Atlantic Council.

The post Front Page event with President of the European Central Bank Christine Lagarde featured in Politico on the impact of trade restrictions appeared first on Atlantic Council.

The post Front Page event with President of the European Central Bank Christine Lagarde featured in Euronews on Europe’s economic outlook appeared first on Atlantic Council.

Uncertainty continues to loom over Iran as Israeli officials pledge to retaliate against Tehran’s ballistic missile attack on Israel earlier this month. However, while most analysis focuses on Iran’s geopolitical objectives in the region, there has been less discussion about the severe economic constraints facing the regime. These challenges will be at the center of Iran’s priorities during its first BRICS summit. 

Iran’s economy is underperforming—and of its fellow BRICS members, it has one of the weakest economies. The chart below shows the difference in gross domestic product (GDP) growth rates amongst BRICS countries from 2023 to 2024, with Iran’s rate declining the most. The country’s  economy is expected to continue to struggle, with growth rates remaining around 2 percent and inflation hovering around 34 percent. According to local media reports, bread prices have surged by 200 percent within the last year, while other basic necessities, such as water and housing, have also seen steep price hikes.

Sanctions are a part of the story. Since initial US economic sanctions, Iran’s GDP growth has consistently remained below its 2011 high. IMF forecasts suggest that the country’s GDP will continue to lag behind that peak through 2029. But there is more to the situation than just sanctions. Iran’s gas and energy plants are rusted and outdated, operating at only 70 percent capacity. The country’s inability to modernize is a direct result of western firms pulling out of the country over the past decade. Iran’s lack of energy has already sparked significant public outrage, as frequent blackouts disrupt daily life, halt industrial operations, and force the government to partially shut down offices during periods of peak demand. This is on top of ongoing concerns of corruption and mismanagement. 

While these issues have created serious domestic challenges, the energy crisis has also taken a significant toll on Iran’s exports, particularly steel production (one of Iran’s largest non-oil exports), which declined by 50 percent last month. Ironically, despite facing persistent energy shortages and a 17,000 megawatt power deficit, Iran is also exporting electricity. Domestic energy prices are so tightly controlled that even the state-owned energy company, Tavanir, is forced to sell electricity abroad at higher rates to stay afloat. Without this export revenue, Iran would face even deeper economic losses and worsen its debt. 

The story doesn’t look much better on the international side. Trade between Iran and its largest trading partners—China, the United Arab Emirates, Iraq, Russia, India, and Turkey—declined in 2023. Iran saw a 26 percent drop in trade with India, a 17 percent decline with Russia, and a staggering 33 percent falloff with Turkey. To make matters worse, China, the main customer of Iranian oil, significantly reduced its purchases this year. Since sanctions were reimposed on Iran in 2018, independent Chinese refiners, or “teapots,” have been key buyers of Iranian crude, taking advantage of discounts from sanctioned countries such as Iran, Russia, and Venezuela. Many of these oil transactions were conducted in Chinese currency and payment systems, allowing Iran to circumvent sanctions. Last year, oil exports to China accounted for about 5 percent of Iran’s total economic output. However, China’s weakening economy and declining domestic demand for oil are now creating ripple effects for Tehran’s sales. Chinese refiners also report that Iranian sellers are attempting to raise prices by offering smaller discounts as tensions escalate in the Middle East.

Iran will likely use the BRICS summit as an opportunity to pursue more trade and financial partnerships with its allies, as a part of the country’s “Look to the East” policy. Pezeshkian’s goal will be to attract domestic investment and secure technology transfers to address Iran’s energy shortages and boost production in key sectors like steel. Iran’s central bank governor, Mohammad-Reza Farzin, has already announced plans to seek membership in the BRICS-led New Development Bank. With this membership, Iran hopes to advance its development goals independently of the World Bank and other Western financial institutions—an agenda that, according to Farzin, will be a key focus at the summit.

While conflict in the Middle East continues to dominate headlines, Iran’s economic and energy crises also poses a significant threat to the regime’s long-term stability. Even as the country’s leadership navigates international isolation, internal corruption and mismanagement, and rising domestic frustration, resolving these internal economic challenges will be just as crucial. The reality is that Pezeshkian will show up to the BRICS leaders meeting and look for support across the BRICS not only in the military domain, but also for his country’s economy.

Josh Lipsky is the senior director of the Atlantic Council GeoEconomics Center and a former adviser to the International Monetary Fund.

Alisha Chhangani is an assistant director with the Atlantic Council GeoEconomics Center.

This post is adapted from the GeoEconomics Center’s weekly Guide to the Global Economy newsletter. If you are interested in getting the newsletter, email SBusch@atlanticcouncil.org

At the intersection of economics, finance, and foreign policy, the GeoEconomics Center is a translation hub with the goal of helping shape a better global economic future.

Learn more

The post A crack in the BRICS: Iran’s economic challenges take center stage at Russia’s summit  appeared first on Atlantic Council.

The post Event with External Member of the Bank of England’s Monetary Policy Committee Megan Greene featured in Reuters on inflation and interest rates appeared first on Atlantic Council.